Fifty retirement-related organizations sent a letter to the Treasury Department and specifically the IRS on July 19 requesting “transition relief” for Section 603 under the SECURE 2.0 Act.
The signers—representing advocacy organizations (including the American Retirement Association), large corporations and municipal pension funds—asked for more time to comply with a requirement that catch-up contributions for individuals that make more than $145,000 be made on a Roth basis. As the letter states, it may be seen as a straightforward requirement, yet there are numerous administrative recordkeeping and payroll hurdles that must be overcome, many of which require guidance from Treasury and the IRS.
“Plan sponsors, along with their payroll vendors and in-house payroll, and their service providers are working to implement this provision; however, because of the many outstanding issues that require Treasury guidance, it is proving difficult to implement this on a timely basis,” the letter reads. “Even with the guidance, this change is an enormous undertaking requiring significant coordination among multiple parties and the development, testing, integration, and implementation of entirely new systems which will take substantial time to comply.”
SEE FULL TEXT OF THE LETTER HERE
The parties worry that without additional time for compliance, many plan sponsors will simply discontinue catch-up contributions all together.
“This latest Coalition letter to the IRS and Treasury asking for a two-year transition relief from the Section 603 mandatory Roth catch-up provision in the SECURE 2.0 Act is intended as a follow-up from the initial Coalition letter to Capitol Hill on this issue last month,” explains Andrew Remo, Director of Federal & State Legislative Affairs for the American Retirement Association. “The ARA, along with many other retirement industry stakeholders, remains concerned that catch-up contributions will be effectively eliminated beginning next year if nothing is done.”
The issue stems from a significant technical error in the SECURE 2.0 Act of 2022 regarding catch-up contributions, first identified by the American Retirement Association.
Specifically, according to wording in the legislation, beginning in 2024, no participants will be able to make catch-up contributions (pre-tax or Roth).
That’s the result of the elimination of a subparagraph in the body of the legislation to allow for a conforming amendment—but in the process inadvertently eliminated the ability to make any pre-tax catch-up contributions, ARA CEO Brian Graff said Monday. In addition, since under current law Roth catch-up contributions can only be made for amounts that could have been excluded from income but for the Roth election—the current legislative text puts all such future contributions at risk.
ARA already alerted the Treasury Department and the Joint Committee on Taxation about the error in January.