Compliance January 25, 2023

SECURE 2.0 Accidentally Dropped Catch-Ups, But Industry is On the Case

Legislators seem to have dropped a section from the final version of SECURE 2.0 that nullifies catch-up contributions in retirement plans, but an industry advocate has already called for a fix.

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When finalizing the retirement reform section of the 4,000-page omnibus spending bill in December 2022, Congress looks to have made an error that nullifies current and future retirement plan catch-up contributions.

A paragraph was omitted from the SECURE 2.0 Act of 2022 that technically eliminates reforms to allow pre-tax and pre-existing after-tax catch-up contributions to retirement plans, an issue brought to attention by the American Retirement Association in a story Tuesday from its partner organization, the National Association of Plan Advisors. The ARA has alerted the U.S. Department of the Treasury and the Joint Committee on Taxation, NAPA noted.

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While the omission of a certain section of the bill creates a potential error, there is also clear intention to allow for catch-up contributions going forward in 2023 and 2024, according to David Levine, co-chair of the Groom Law Group’s plan sponsor practice.

The attorney points to page 933 of the bill, which amends Section 414(v) of the Internal Revenue Code for elective deferrals, noting that certain employer retirement plan deferrals must be Roth contributions for those with wages above $145,000. The intention is clear enough from the bill that Levine said he thinks the IRS can operate with the assumption that catch-up contributions are possible via the existing 414(v)(1) policy.

“Legislation would be beneficial to clear this up, but we can make an argument that it isn’t required,” Levine says. “Of course, it would be great to have everything buttoned up.”

SECURE 2.0, which built on the Setting Every Community Up for Retirement Enhancement Act of 2019, was intended to allow pre-tax catch-up contributions by those making less than $145,000 in wages, giving Americans more of a chance for pre-tax saving. In seeking to make that adjustment to align with the Internal Revenue Code, a section was deleted from the final version of the law that not only eliminates pre-tax contributions, but also related Roth contributions.

Levine notes that there is precedent for the IRS to make a special provision when a bill appears to have been misrepresented. He refers to a case in 2006 when there was confusion as to whether a government retirement plan could make a nontaxable contribution of up to $3,000 to a retired public safety officer’s accident or health insurance plan. As written, the law may have allowed the money to go directly to the officer or dependents, but the IRS provided special provision 402(l), confirming it should go to the insurance plan directly.

The catch-up contribution rule is scheduled to go into effect in 2024; a correction would need to be passed by a Congress even more divided across party lines than when the omnibus bill passed with a 225 to 201 vote, with one member voting present.

“Congress spent a lot of resources and personal capital to get SECURE 2.0 through,” Levine notes. “Things don’t move as fast as you might hope, even though retirement is an area of consensus.”

Benefits January 25, 2023

Delta Pilots Emergency Savings Program

The airline has partnered with Fidelity Investments to run a program in which enrolled workers can earn up to $1,000 to seed an emergency savings account.

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Delta Air Lines officially launched an emergency savings program for eligible employees, in partnership with nonprofit financial advisory organization Operation Hope Inc. and Fidelity Investments, the airline announced Monday on its website. 

“Our primary goal is to help improve the financial well-being of Delta’s people,” the spokesperson says. “We anticipate measuring the program’s success in a number of ways, including employee feedback, level of participation and its effect on other related financial metrics.”

Every Delta Air Lines U.S. employee below the director level, including pilots, is eligible for the program.

Employer-sponsored emergency savings programs are designed to help workers save for financial emergencies. Like retirement plan contributions, workers automatically contribute a portion of their paycheck and deposit it into a separate account, but unlike many retirement contributions, employee contributions made to emergency savings accounts are made on an after-tax basis.

Josh Jessup, general manager of human resources at Delta Air Lines, had said in 2022 that the company planned to launch emergency savings account access to workers through its 401(k) recordkeeper during a Plan Progress webinar hosted by PLANSPONSOR in August.

The Delta website includes additional details on the program: Once enrolled, workers are prompted to open an account with Fidelity Investments dedicated to emergencies, funded directly from their paycheck, states the firm.

The employees then take an online financial education course and a series of one-on-one financial coaching sessions. Once those are completed, employees will receive $750 from Delta to start their emergency savings account, according to Delta.

Enrolled employees can choose from three coaching paths based on their goals and situations:

  • Managing day-to-day saving and spending;
  • Strengthening financial foundations; and 
  • Focusing on future goals.

 

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Delta will also match up to $250 of employees’ personal contributions to the same account and will cover taxes on the company’s contributions so employees have access to the full $1,000 contributed by the company.

“Through the program’s education and coaching resources, committing to regular contributions to their emergency savings, and a $1,000 boost to those emergency savings balances, we believe our people will learn principles and reinforce positive habits that can strengthen their financial well-being throughout their career with Delta and beyond,” the spokesperson adds.

Fidelity was tapped as the administrator for the savings and company-matching portions of the program, the Boston-based recordkeeper announced in a press release. The firm is also recordkeeper and custodian for Delta’s retirement plans.

“Too many Americans are unprepared to handle the unexpected, and this current economic environment only makes it more important to help people establish solid savings behaviors and build a foundation to cover short-term expenses,” Kevin Barry, president of workplace investing at Fidelity Investments, said in the release.

Operation Hope and Fidelity Investments will teach the courses in finance.

Federal Reserve research in 2022 found 68% of all adults would not have access to $400 cash to cover an emergency expense, and a survey from Bankrate found 43% of individuals could not cover an emergency expense of $1,000 or more from their savings.

The retirement reform package passed by Congress in December 2022, the SECURE 2.0 Act of 2022, included two provisions for emergency savings programs. Both will become effective in 2024.

The first would permit the creation of a separate sidecar account tied to a worker’s retirement account. Another provision permits workers to withdraw up to $1,000 in a year from their retirement account to cover the cost of an emergency.

Several studies have shown a connection between workers’ retirement and access to emergency savings accounts. Employees with access to an emergency savings program are less likely to tap their 401(k) or retirement savings when they have a pressing or sudden financial need, according to research from Commonwealth and the Defined Contribution Institutional Investment Association.

For low- and moderate-income workers, access to emergency savings accounts is also likely to bolster retirement contributions, explained Natalie Blain, a senior innovation manager at Commonwealth, at the Plan Progress webinar.

Delta Air Lines was named a 2022 Plan Sponsor of the year for corporate defined contribution plans with more than $1 billion in plan assets.

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