For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.
Ask the Experts January 31, 2023
Does the SECURE 2.0 Act Make 403(b) Plans More Like 401(k) Plans?
Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.
Reported by PS
Q: I understand that the recently enacted SECURE 2.0 Act made 403(b) plans a lot more like 401(k) plans. Is this true?
Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
A: Yes, to some extent. For example, SECURE 2.0 Act of 2022 does conform the hardship distribution rules for 403(b) plans to those of 401(k) plans. Historically the hardship distribution provisions for 401(k) plans were quite different than for 403(b) plans, particularly with regard to the types of funds that could be distributed for financial hardship. However, beginning in 2024, those historic differences will be eliminated, with the 403(b) hardship distribution provisions mirroring that of 401(k) plans. The SECURE 2.0 Act also modified the long-term part-time rules first introduced in the SECURE Act of 2019 and extended those rules to ERISA-covered 403(b) plans, generally beginning with the 2025 plan year.
There are also other provisions in SECURE 2.0 Act creating new rules under which 403(b) plans will mirror 401(k) plans. For example, 403(b) plans and 401(k) plans will require automatic enrollment and automatic escalation for certain new plans beginning in 2025; age 50 catch-up contributions will need to be made on a Roth basis for certain employees beginning in 2024; and 403(b) plans, like 401(k) plans, will now be permitted to participate in multiple employer and pooled employer plans. There is also a provision that would allow 403(b) plans to invest in collective investment trusts (CIT), but as a practical matter CITs currently cannot be added to 403(b) plans without significant changes to securities law.
All in all, there remain many differences between 401(k) and 403(b) plans, but SECURE 2.0 Act did a little to address this issue.
NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.
Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.