As you may already know, Congress passed sweeping legislation in late December 2022 called Setting Every Community Up for Retirement Enhancement (“SECURE Act 2.0”) which has a substantial impact for retirement plan sponsors and participants. SECURE Act 2.0 builds upon some of the changes from the original SECURE Act, which was passed in December 2019. Vestwell is proud to have participated in discussions with a few of the senators who sponsored this bill and we are even more excited about many of the new benefits available to business owners and their employees. While many of the new rules don’t go into effect for a few more years, some changes went into effect on January 1, 2023 and others take effect next year. SECURE Act 2.0 is considered the most significant change to workplace retirement plans in over 20 years.
Overview of SECURE Act 2.0
The legislation includes numerous provisions that benefit everyone involved in your retirement plan. Plan sponsors get tax credits for starting a new plan that could make it free to offer a plan for the first three years. There are also a set of new penalty-free withdrawals available to participants, such as for victims of domestic abuse, for long-term care insurance premiums, emergency savings withdrawals, or to cover certain expenses in a federally declared natural disaster. Additionally, participants who repay qualified student loans can receive an employer match on those payments.
How does this impact my plan for the 2023 plan year?
The following changes took effect either with the passage of the SECURE Act 2.0 or on January 1, 2023.
Tax credits and similar changes: If you started your plan within the last three years or are a sole proprietorship, we recommend speaking with your tax advisor to understand how these credits are available to you.
- Businesses starting a new plan can receive enhanced tax credits.
- Sole proprietorships can make retroactive contributions to the first year of their plan.
Required changes that take effect this year: Vestwell will be implementing these changes during 2023.
- Required Minimum Distributions begin when participants turn age 73.
- Elimination of certain notices to terminated participants with a balance in the plan.
Optional changes available to your plan: SECURE Act 2.0 also allows for a variety of optional plan features. We are working with our in-house retirement experts and product teams to determine and implement those features which best support our clients.
When will Vestwell provide an interim amendment to my plan document to memorialize these changes?
None of the changes arising out of the new rules require an individualized, immediate plan amendment. Furthermore, legislative changes such as these result in an interim amendment that will be created and released by Vestwell for you, so you do not need to worry about monitoring your individual plan.
As with all significant legislative changes, the Internal Revenue Service and Department of Labor are expected to issue guidance in the coming months and years that will help recordkeepers and others understand the impact of the new rules and how to apply them. In fact, even as of this update, some concerns and errors in the new legislation are still being raised by our industry and it will take time for the regulators and Congress to make any adjustments. For all of those reasons, the SECURE Act 2.0 interim amendment is not expected to be released for many months until such details are determined..
Vestwell will communicate with you and your plan participants as more guidance becomes available regarding an interim plan amendment. In the meantime, you can always check our Help Center or contact your Vestwell representative if you want to know more details about any of the new rules and the options available to you to change your plan’s features to maximize the benefits of your plan for your business and employees.