2024 PS Webinar: SECURE 2.0 for 403(b) Plans

The SECURE 2.0 Act of 2022 is a sprawling bill, affecting 403(b) plans with many provisions that have come into force since passage.

Retirement experts at PLANSPONSOR’s recent webinar, SECURE 2.0 for 403(b) Plans, examined the provisions of the law that took effect this year and before.  

Sponsors of 403(b) retirement plan “get bombarded with webinars and comments … but you have time to get your plan documents in line“ for SECURE 2.0 compliance, said David Levine, a principal in, and employers and sponsors co-chair at, Groom Law Group, Chartered.

It is best for plan sponsors to tackle implementation of the new law deliberately, Levine said.

“It’s about understanding what you want to do, what you have to do, and what you might want to do,” he explained. “In the meantime, whatever you do, you have to follow the rules.”

Congress passed the wide-ranging retirement law in 2022 to expand access to retirement savings and build on the Setting Every Community Up for Retirement Enhancement Act of 2019.

“A big trend in SECURE 2.0 is allowing employees just a little [relief by] just lowering that barrier to access to their funds,” said Shalina Schaefer, senior counsel, at law firm Ice Miller LLP.

PLANSPONSOR’s webinar panelists were Schaefer, along with Mike Webb, senior manager, plan consulting at CAPTRUST and Levine, who said that the online seminar aims to “[provide plan sponsors with] the highlights and takeaways and what [those] means to you.”

“Right now, one of my favorite words [for 403(b) plans] is: Breathe,” Levine said. “Take a breath—there is a lot going on.”

Mandatory Changes, Effective This Year

For 403(b) plan sponsors, newly effective provisions are either for mandatory or optional changes. The  mandatory changes effective January 1 include:

• No pre-death required minimum distributions from Roth accounts;

For RMDs made for this year and after, RMDs are no longer required with respect to Roth accounts.

• Roth catch-up contributions for higher earners.

SECURE 2.0 requires age-based catch-up contributions to be made on a Roth basis for all participants whose wages exceed $145,000—indexed—for the preceding calendar year. The mandatory change was intended to become effective January 1, but IRS Notice 2023-62 delayed the effective date to January 1, 2026.

Optional Changes, Effective This Year

• Increase in the mandatory distribution amount.

SECURE 2.0 increased the dollar limit to $7,000 from $5,000 for mandatory distributions of small accounts or benefits.

• Emergency personal expense distribution.

An optional change to permit a new in-service distribution right relating to personal or family emergency expenses.

• Domestic abuse victim distribution.

Permits a new in-service distribution right within one year of the date on which the participant is a victim of domestic abuse by a spouse or domestic partner.

• Inclusion of earnings in hardship distributions.

Hardship distributions from 403(b) plans can be made from earnings.

• Matching contributions on student loan repayments.

Employers can treat employee student loan repayments as elective deferrals to a plan and provide a match.

• Emergency savings accounts.

SECURE 2.0 permits a 401(k), 403(b) or governmental 457(b) plan to add short-term emergency savings accounts to which non-highly compensated employees can make Roth contributions.

Left Out of the Act

While SECURE 2.0 did lower the barrier to participants accessing their funds by allowing workers’ self-certification of hardships, lawmakers have not yet removed the obstacle to 403(b) plan sponsors investing retirement assets in collective investment trusts.

Despite efforts to allow 403(b) plans to invest in collective investment trusts, nonprofit plans that “want to use a collective investment trust in a 403(b) plan still have securities law concerns,” Levine explained.

Retirement plan advisers, recordkeepers, workplace benefits attorneys and 403(b) plan advocates of many types have awaited lawmakers making the change to allow CITs in nonprofit plans since at least 2018, prior to when Congress passed the original SECURE Act.

Webb said Congress is unlikely to act to greenlight CITs for nonprofit plans this year.

“I’ve done this dance before with Congress,” he said. “I’m not so sure there’s going to be a lot of time and attention paid to this in an election year for this to be done in 2024, so now we’re looking at maybe 2025.”

Congress drafted corrections to SECURE 2.0, this past December, that included an effort to permit  CITs in 403(b) plans. The bill was expected to be added to a budget bill, early this year.

Last year, the House Committee on Financial Services approved the Retirement Fairness for Charities and Educational Institutions Act, amending the Investment Company Acts of 1933 and 1940 to address the pending securities law issues. The bill has not advanced to the full House for a vote.