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ABC Files Lawsuit Against President Biden’s Anti-Competitive Project Labor Agreement Rule for Federal Construction Projects

ABC Files Lawsuit Against President Biden’s Anti-Competitive Project Labor Agreement Rule for Federal Construction Projects

WASHINGTON, March 28—Associated Builders and Contractors and its Florida First Coast chapter filed suit today in federal court to stop the Biden administration’s unlawful scheme to mandate project labor agreements on construction contracts procured by federal agencies. ABC’s complaint asserts that President Joe Biden lacks the legal and constitutional authority to impose a new federal regulation injuring economy and efficiency in federal contracting and illegally steering construction contracts to certain unionized contractors, which employ roughly 10% of the U.S. construction workforce.

ABC estimates the Biden pro-PLA policy will affect at least 180 federal construction contracts valued at $16 billion across America on an annual basis, including several federal construction contracts for projects in Jacksonville and dozens of projects in Florida and the Southeast.

“ABC seeks a national injunction against President Biden’s executive overreach, which makes a mockery of federal procurement laws and rewards powerful special interests with government construction contracts at the expense of taxpayers and the principles of fair and open competition in government procurement,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs. “ABC has heard from large and small federal contractors—including firms signatory to union agreements—and concerned federal agency contracting officers that the Biden administration’s controversial PLA policy has already stifled competition and raised costs on federal construction contracts in Florida and across the country. This policy will continue to do so absent a successful legal challenge.”

“When mandated by government agencies, PLAs needlessly increase construction costs by 12% to 20%, reduce opportunities for qualified large and small contractors and their craft and noncraft employees, and exacerbate the construction industry’s worker shortage of more than half a million people by discriminating against the nearly 90% of the industry workforce that is not unionized,” said Brubeck. “PLAs discourage competition by forcing contractors to sign union collective bargaining agreements, which require them to follow inefficient and cumbersome union work rules, hire most or all workers from union halls and apprenticeship programs, accept compulsory union representation on behalf of any remaining members of its existing workforce and expose them to union wage theft of up to 34% of their compensation unless they join a union and vest in union benefits plans.”

ABC and its Florida First Coast chapter filed the lawsuit in the U.S. District Court for the Middle District of Florida in Jacksonville in response to the Federal Acquisition Regulatory Council’s Dec. 22, 2023, final rule––and the related Dec. 18, 2023, White House Office of Management and Budget Memo––implementing President Biden’s Feb. 4, 2022, Executive Order 14063, which mandates PLAs on federal construction projects of $35 million or more.

In its legal filing, ABC asserted that the Biden administration’s PLA rule is beyond the scope of executive authority and violates the Constitution, the First Amendment and the Administrative Procedure Act. The complaint also notes that the rule violates the Federal Property Administrative Services Act, the Competition in Contracting Act, the National Labor Relations Act, the Office of Federal Procurement Policy Act and the Regulatory Flexibility Act, among others, by limiting competition and forcing large and small businesses to sign union agreements as a condition of winning a federal contract for construction services.

ABC members won 54% of the $205.56 billion in federal contracts worth $35 million or more during fiscal years 2009-2023 and built award-winning projects safely, on time and on budget, without unnecessary government-mandated PLAs.

Original Article Provided By: https://www.abc.org/News-Media/News-Releases/abc-files-lawsuit-against-president-bidens-anti-competitive-project-labor-agreement-rule-for-federal-construction-projects

Congress Publishes SECURE 2.0 Corrections Draft Legislation

Congress Publishes SECURE 2.0 Corrections Draft Legislation

Members of the House of Representatives and the Senate Thursday issued a “discussion draft” for the much-anticipated bill applying technical corrections to the SECURE 2.0 Act of 2022.

Restoring Catch-Ups

The bill would make corrections to several mistakes made in the hallmark retirement law. First and foremost, it corrects the most egregious error of SECURE 2.0: accidentally removing catch-up contributions, starting in 2024. The drafters of SECURE 2.0 originally intended to create a higher catch-up limit for those aged 60 to 63, sometimes called super-catch-ups, and in the rush to pass a budget in December 2022, they made this now-infamous error. The corrections bill would make the original intent effective without removing catch-up contributions.

In light of their original intent, the IRS announced in August it will permit catch-up contributions to be made into 2024, even though SECURE 2.0 technically removes the concept from the code. This means catch-ups would be safe, even if the corrections bill is passed after December 31.

Though not a technical error, strictly speaking, and more an error in judgment, the IRS announced in the same guidance that it would extend to January 1, 2026, from January 1, 2024, the effective date for employees making $145,000 or more to make catch-up contribution on a Roth, or after-tax, basis. The corrections bill does not speak to this issue, presumably because the IRS has already addressed it through guidance.

Matching Starter 401(k) Limits to IRAs

The corrections bill would also explicitly tie the maximum contribution amount for Starter 401(k) plans to the annual maximum for individual retirement accounts. SECURE 2.0 previously set the maximum for Starter plans at $6,000 indexed, which was the IRA limit in 2022, but that provision was not set to take effect until 2024, when the IRA limit is set to become $7,000, effectively making the Starter limit both less than and divorced from the IRA limit. The correction effectively says that the Starter limit will match the IRA limit.

Additionally, the provision in SECURE 2.0 changing required mandatory distributions would also be corrected to reflect the intent of the drafters, which was to increase the age to 73 starting on January 1, 2023, and age 75 starting on January 1, 2033.

Further, the legislation would change the effective date for the 15% ceiling on automatic escalation found in Section 101 of SECURE 2.0. Plans started since SECURE 2.0’s passage must adopt auto-enrollment at 3% to 10%, then escalate by 1% to an end range between 10% and 15%, unless the participant elects otherwise. The corrections bill would move the date for the 15% ceiling on escalation to January 1, 2026, instead of 2025, leaving the ceiling at 10% in the meantime.

Other provisions in SECURE 2.0 received minor clerical corrections, including the Saver’s Match and plan lost and found.

Timing Dependent on Budget—Again

Michael Kreps, a principal in and chair of Groom Law Group’s retirement services group, says, “There was some hope from industry that there would be a more comprehensive ‘fix-it’ package, but there does not appear to be an appetite on Capitol Hill to relitigate substantive issues.”

Substantive issues, such as the decision to permit 403(b) plans to use collective investment trusts, are not part of the bill because their omission was not technical in character. The Retirement Fairness for Charities and Educational Institutions Act would address it, but no action has been taken since it passed the House Committee on Financial Services in May.

Assuming the corrections bill is attached to a budget bill, it will have two opportunities to pass, given the staggered nature of the expirations of the November continuing resolutions that extended federal spending to January 19 and February 2.


Original Article Provided By: Congress Publishes SECURE 2.0 Corrections Draft Legislation | PLANADVISER


Roth Catch-Up Mandate in Secure 2.0: The Devilish Details

Roth Catch-Up Mandate in Secure 2.0: The Devilish Details

What You Need to Know

  • The IRS is delaying, until 2026, a rule mandating that catch-up contributions for certain high-income taxpayers be treated as Roth contributions.
  • A $145,000 income threshold, indexed for inflation, is not tied to existing definitions of highly compensated employees.
  • Starting in 2025, a separate catch-up contribution will be permitted for taxpayers between 60 and 63 years old.

The Internal Revenue Service has offered a two-year delay for the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act’s mandate that all catch-up contributions for certain high-income taxpayers be treated as Roth contributions.

Still, many plan sponsors and participants have been wondering about the details that will determine how the rule is implemented in practice.

In the same guidance that delayed the formal effective date of the Roth catch-up mandate, the IRS answered some pressing questions — and acknowledged that additional questions remain to be answered in forthcoming guidance.

Secure 2.0 & Catch-Up Contributions: The Basics

For company-sponsored retirement plans, including 401(k)s and 403(b) plans, the catch-up contribution limit is $7,500 in 2023. Starting in 2025, a separate catch-up contribution is permitted for taxpayers who are between ages 60 and 63. That contribution limit will be equal to the greater of (1) $10,000 or (2) 150% of the standard catch-up contribution limit for 2024. The $10,000 limit will also be indexed for inflation. Once the taxpayer turns 64, the standard catch-up contribution limit applies.

Starting in 2026, after the two-year IRS delay, if a taxpayer has income of at least $145,000 for the prior year, the catch-up contribution for the subsequent year must be treated as a Roth contribution. That means these funds are contributed with after-tax dollars, so they will not reduce current taxable income but can be withdrawn tax-free in the future. The $145,000 amount will also be indexed for inflation.

The $145,000 threshold is new and is not tied to existing definitions of highly compensated employees. That amount is also tied to W-2 income, so if an S corporation owner takes $130,000 in compensation but also receives additional profits from the corporation, the owner will not have crossed the $145,000 threshold to trigger the Roth contribution rule.

Similarly, many expected that the new Roth contribution rule would not apply to sole proprietors, partners in partnerships, or LLC members who are taxed as sole proprietors. That’s because these taxpayers are considered self-employed and, by definition, do not receive W-2 compensation.

IRS Guidance on the Roth Catch-Up Mandate

In Notice 2023-62, the IRS delayed the effective date of the new Roth catch-up rule to 2026. The IRS also confirmed that the definition of wages for purposes of the Roth mandate includes only those that are subject to FICA taxes (so amounts that are reported in Box 3 of a taxpayer’s Form W-2).

The IRS clarified that if an employee subject to the Roth catch-up requirement elects to make catch-up contributions on a pretax basis, the plan sponsor can disregard that election and treat the catch-up as a Roth contribution.

When multiple employers sponsor the same 401(k) and an employee has wages from more than one employer, the amounts will not be aggregated for purposes of determining whether the employee is subject to the Roth mandate.

The IRS has requested comments on whether employers should be required to either offer a Roth option or eliminate catch-up contributions altogether (in other words, whether an employer should be permitted to not offer a Roth option and limit catch-up contributions to lower-paid employees who are eligible to make pretax catch-up contributions). Under current law, offering a Roth contribution option is at the discretion of employer-sponsored retirement plans.


The Roth catch-up contribution requirement is much more complex than it appears. It is expected that additional guidance and clarification will be forthcoming before the mandate formally becomes effective. Of course, plan sponsors and participants should start planning now to be ready for the future changes.

Original Article Provided By: https://www.thinkadvisor.com/2023/09/27/roth-catch-up-mandate-in-secure-2-0-the-devilish-details/


ABC: Nonresidential Construction Employment Increases in July

ABC: Nonresidential Construction Employment Increases in July

The construction industry added 19,000 jobs on net in July, according to an Associated Builders and Contractors analysis of data released today by the U.S. Bureau of Labor Statistics. On a year-over-year basis, industry employment has expanded by 198,000 jobs, an increase of 2.5%.

Nonresidential construction employment increased by 10,600 positions on net, with growth in two of the three subcategories. Nonresidential building added 10,500 positions, while heavy and civil engineering added an additional 2,200 jobs. Nonresidential specialty trade lost 2,100 jobs on net.

The construction unemployment rate rose to 3.9% in July. Unemployment across all industries declined from 3.6% in June to 3.5% last month.

“The economy is slowing, and inflation remains problematic,” said ABC Chief Economist Anirban Basu. “While many economists have reversed their predictions of a near-term recession and conclude that the Federal Reserve will be able to engineer a soft landing, today’s report is a reminder that risks remain. Not only is the economy slowing, but wage pressures remain. Accordingly, the war on excess inflation has not yet been won, which means that the Federal Reserve may not be done raising rates.

“That said, nonresidential construction contractors continue to expand their payrolls,” said Basu. “General and public works contractors collectively hired thousands of people in July. However, weakness in several commercial real estate segments may help explain job losses among nonresidential contractors last month. Nonetheless, construction worker wages continue to grow rapidly in the context of structural skills shortages. According to data from the ADP Pay Insights report, construction workers who stayed at their job saw a 6.4% wage increase over the past year, or more than twice the rate of inflation.

“ABC’s Construction Confidence Index indicates that contractors will collectively continue to expand staffing for the rest of 2023,” said Basu. “That will presumably keep upward pressure on industry wages even if the broader economy continues to soften.”


Original Article Provided By:

Original Article Provided By: News Releases | ABC: Nonresidential Construction Employment Incre

ARA Presses Treasury for More Time on Roth Catch-Ups

ARA Presses Treasury for More Time on Roth Catch-Ups

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.”

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.

Original Article Provided By: ARA Presses Treasury for More Time on Roth Catch-Ups | AMERICAN SOCIETY OF PENSION PROFESSIONALS & ACTUARIES (asppa.org)

USDOL To Offer Online Seminars On Prevailing Wage Requirements

USDOL To Offer Online Seminars On Prevailing Wage Requirements
Agency seeks to increase awareness of requirements related to federal contracts

The U.S. Department of Labor’s Wage and Hour Division will begin offering online seminars for contracting agencies, contractors, unions and workers on the requirements for paying prevailing wages on federally funded construction and service contracts.

According to the agency, which said the seminars are part of its effort to increase awareness and improve compliance, the seminars will include recorded training videos on a variety of Davis-Bacon Act and Service Contract Act topics that participants can view on demand. The division will then offer live Q&A sessions to provide additional information.

Q&A sessions on compliance issues related to the Davis-Bacon Pact will be offered June 27 and Sept. 13. The Service Contract Act Q&A sessions will be June 28 and Sept. 14.

“Prevailing wage laws are key to ensuring that construction and service jobs are good jobs and that workers on federally funded projects across the country are paid fair wages and benefits,” said Principal Deputy Wage and Hour Administrator Jessica Looman. “Recent investments in our nation’s infrastructure offer us a great opportunity to educate employers so they can compete for new federal contract opportunities and put skilled employees to work in their communities.”

While seminar attendance is free, registration is required. Additional information, including the links to pre-recorded video trainings and virtual Q&A sessions, will be provided to participants after registration.

Original Article Provided By: USDOL to offer online seminars on prevailing wage requirements – NH Business Review (nhbr.com)


Construction Firms Add 15,000 Jobs In April As Sector’s Unemployment Rate Hits Record Low For The Month As Firms Struggle To Find Workers

Construction Firms Add 15,000 Jobs In April As Sector’s Unemployment Rate Hits Record Low For The Month As Firms Struggle To Find Workers

Most of the Construction Gains Occurred in the Residential Construction Sector While Firms Now Pay Workers 19 Percent More Compared to the Average Job as they Struggle to Recruit New People

The construction sector added 15,000 jobs in April while the sector’s unemployment rate fell to a record low for the month and the number of unfilled construction positions is close to a monthly high, according to an analysis of new government data the Associated General Contractors of America released today. Association officials said the industry likely would have added even more positions if contractors could find more qualified workers.


“Contractors can’t find, reach, hire and train workers fast enough to keep pace with demand,” said Stephen E. Sandherr, the association’s chief executive officer. “The pool of qualified, available labor is the smallest the industry has ever seen for the month of April.”


Construction employment in April totaled 7,903,000, seasonally adjusted, an addition of 15,000 or 0.2 percent from the month prior. Nonresidential construction firms—nonresidential building and specialty trade contractors along with heavy and civil engineering construction firms—added only 800 employees in April. Meanwhile, employment at residential building and specialty trade contractors grew by 14,200 or 0.4 percent.


The unemployment rate among jobseekers with construction experienced declined from 4.6 percent in April 2022 to 4.1 percent, the lowest April rate in the 23-year history of the data. A separate government report released earlier this week reported that job openings in construction at the end of March totaled 355,000, just shy of the all-time high for March of 359,000.


Average hourly earnings for production and nonsupervisory employees in construction—covering most onsite craft workers as well as many office workers—jumped by 6.7 percent over the year to $33.94 per hour. Construction firms in April provided a wage “premium” of nearly 19 percent compared to the average hourly earnings for all private-sector production employees.


Association officials noted that the industry is struggling to recruit workers at a time when the federal government spends five dollars to encourage students to go to college and worker in service sector professions for every dollar it invests in career and technical education. They urged public officials to boost funding for construction education and training, and to explore short-term measures, like immigration reform, to address severe labor shortages.

“Federal officials are making massive investments in infrastructure even while their funding policies actively discourage most future workers from considering careers in construction,” Sandherr said. “They don’t seem to want our citizens to work in construction even while they block people from other countries from lawfully entering the profession.”

Original Article Provided By: Construction Firms Add 15,000 Jobs In April As Sector’s Unemployment Rate Hits Record Low For The Month As Firms Struggle To Find Workers | Associated General Contractors of America (agc.org)


Why It Pays to Be a Consistent Retirement Saver

Apart from the recent market volatility, a new study shows significant growth in account balances for 401(k) plan participants who consistently participate—especially for younger workers.

Why It Pays to Be a Consistent Retirement Saver


According to the study from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI)—What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances, 2016–2020—account balances for consistent 401(k) plan participants rose by double-digits for all participant groups.

The average 401(k) plan account balance for consistent participants rose each year from year-end 2016 through year-end 2020. Overall, increases reflect a compound annual average growth rate of more than 19% over the period, with the average account balance rising from $78,008 at year-end 2016 to $158,361 at year-end 2020.

The median 401(k) plan account balance for consistent participants increased at a compound annual average growth rate of more than 28% over the period, to $62,134 at year-end 2020.

As one might presume, the percent change in balance for participants in younger age groups was influenced by the relative size of their contributions to their account balances. Younger 401(k) participants, or those with smaller year-end 2016 balances, experienced higher growth in account balances compared with older participants, who tend to have larger balances on average.

The percent change in average 401(k) plan account balance of participants in their 20s was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 57.4% per year between year-end 2016 and year-end 2020.

Changes in 401(k) Plan Account Balances Among Consistent 401(k) Participants

Average 401(k) plan account balance and percent change compound annual average growth rate 2016–2020

Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project

Consistent Savers vs. Broader Group

Diving deeper into the data further highlights the accumulation effect of ongoing 401(k) participation. Consider that, at year-end 2020, 22.2% of the consistent group had more than $200,000 in their 401(k) plan accounts at their current employers, while another 15.8% had between $100,000 and $200,000. In contrast, in the broader EBRI/ ICI 401(k) database, only 11.4% had accounts with more than $200,000, and 9% had between $100,000 and $200,000.

Reflecting their higher average age and tenure, the study notes that the consistent group also had average and median account balances that were much higher than the average and median account balances of the broader EBRI/ICI 401(k) database.

“Exploring the changes in account balances among consistent 401(k) plan participants highlights the strength of the 401(k) plan as a powerful savings tool,” notes Sarah Holden, senior director, Retirement and Investor Research, ICI.

To that end, at year-end 2020, the average 401(k) plan account balance of the consistent group was $158,361, more than 80% higher than the average account balance of $87,040 among participants in the entire EBRI/ICI 401(k) database. The median 401(k) plan account balance among the consistent participants was $62,134 at year-end 2020, nearly three and a half times the median account balance of $17,961 for participants in the entire EBRI/ICI 401(k) database.

Equity Shifts

Meanwhile, the study also not surprisingly shows that 401(k) participants tend to concentrate their accounts in equity securities. On average at year-end 2020, more than two-thirds of consistent 401(k) participants’ assets were invested in equities—through equity funds, the equity portion of target date funds, the equity portion of non–target date balanced funds, or company stock.

“Younger 401(k) plan participants tended to be more invested in equity funds and target date funds while older participants were more likely to invest in fixed-income securities,” notes Craig Copeland, EBRI Director of Wealth Benefits Research. “At year-end 2020, 401(k) plan participants in their 20s had allocated 86% of their plan account balances to equities while participants in their 60s had allocated 57% to equities.”

The study is based on the EBRI/ICI database of employer-sponsored 401(k) plans and represents the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options. This longitudinal analysis tracks the account balances of 3.7 million 401(k) plan participants who had accounts in the year-end 2016 EBRI/ICI 401(k) database and each subsequent year through year-end 2020.


Original Article Provided By: Why It Pays to Be a Consistent Retirement Saver | National Association of Plan Advisors (napa-net.org)

IRS Offers New Rules on Deadline for Using Retirement Forfeitures

IRS Offers New Rules on Deadline for Using Retirement Forfeitures

The Internal Revenue Service proposed new rules on Monday  formalizing the timing and use of forfeitures in qualified retirement plans by plan sponsors.

The proposal, which would affect participants in, beneficiaries of, administrators of, and sponsors of qualified retirement plans, according to information published in the Federal Register.

It would more clearly define how retirement plans should handle money forfeited by participants when they leave an employer before the end of a vesting schedule, when they die or when other factors result in funds going back to the plan sponsor. While the rule likely will not change how plan advisers and administrators are currently operating, it would make those processes clearer, says R. Randall Tracht, an attorney with Morgan Lewis specializing in retirement plans and the Employee Retirement Income Security Act.

“The IRS has long been of the view that the Internal Revenue Code’s tax-qualification rules and requirements generally do not permit defined contribution plans to carry over unused and unallocated forfeitures from year to year,” Tracht says. “The IRS regularly expressed this position in the course of retirement plan audits, but, until now, the IRS had not issued formal regulations setting forth their position.”

In its proposal, the IRS said some defined contribution plan administrators place forfeited funds into a “plan suspense account” in which the money is held before being put to use. The proposed regulations would “generally require” that plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures happened.

The proposal also specifies the uses for defined contribution plan forfeitures, which are to pay reasonable plan administrative expenses, reduce employer contributions or increase benefits for plan participants.

“Plan sponsors will want to review their plan terms and check with the plan’s recordkeeper to consider whether any changes to the plan’s terms or recordkeeping processes may be desirable,” Tracht says.

The proposed rules are effective for plan years beginning on and after January 1, 2024, and include a transition rule that deems pre-2024 forfeitures to have been incurred in the first plan year beginning on or after January 1, 2024, according to Tracht. This will allow plans time to comply with the new rules.

The IRS said that the proposed regulations are “not expected to require changes to plan terms or plan operations, or otherwise have a significant impact on plans or plan sponsors.” It did say, however, that it is seeking comment from smaller plans and plan sponsors to discuss the “impacts these proposed regulations may have.”

The agency will take public comments online or by mail until May 30 and will set a date for a public hearing if requested.

Original Article Provided By: IRS Offers New Rules on Deadline for Using Retirement Forfeitures | PLANSPONSOR

SECURE 2.0 Act Encourages Employers to Expand Retirement Coverage


Americans are 12 to 15 times more likely to save for retirement if they have access to a retirement savings plan at work.

Yet more than 40% of full-time private-sector workers say they lack access to an employer-provided retirement savings plan. This particularly affects lower-income workers, and especially Blacks and Hispanics.

The SECURE 2.0 Act of 2022 aimed to change this picture by expanding retirement plan coverage, increasing retirement plan savings, and simplifying and clarifying plan rules.

Several provisions facilitate access and participation in employer-provided plans.

Automatic Enrollment

According to the Senate Finance Committee, automatic enrollment in 401(k) plans significantly increases participation, particularly among Black, Latinx, and lower-wage employees.

Effective for plan years on and after Jan. 1, 2024, most new 401(k) and 403(b) plans established after the effective date must include automatic enrollment.

The initial automatic deferral amount must be at least 3%, but not more than 10%, of compensation. Effective the first day of each plan year following the initial year of enrollment, deferrals must automatically increase by at least 1% of compensation, up to a maximum of at least 10%, but no more than 15%, for most plans.

This automatic escalation clause initially caps at 10% for plans with certain safe harbor contributions and qualified automatic enrollment provisions. Plans must also allow permissible withdrawals up to 90 days after the first automatic deferral, but only if participants elect to opt-out of automatic enrollment within a reasonable time.

Small Employer Tax Credit

Nearly half of all Americans work for small businesses, but only about 30% of small businesses offer retirement plans, primarily due to costs of establishing and maintaining them.

SECURE 2.0 increases the startup credit from 50% to 100% for employers with up to 50 employees. The $5,000 cap remains.

The new credit also offsets up to $1,000 of employer contributions per employee in the first year, phased down gradually over five years, though not for employees making more than $100,000 (indexed for inflation). The small employer tax credit increase was effective Jan. 1, 2023.

Starter Plans

More than a dozen state laws require private-sector employers that do not sponsor retirement plans to automatically enroll employees in individual retirement accounts through a state-sponsored program.

Effective for plan years on and after Dec. 31, 2023, SECURE 2.0 permits employers to implement a starter 401(k) or 403(b) plan. The starter plan provision would allow employers in states that require auto-IRAs to satisfy the auto-IRA requirement via a private-sector 401(k) or 403(b) plan.

Starter plans are deferral-only safe harbor plans that permit employees to contribute up to $6,000 per year—with a $1,000 catch-up contribution—without the administrative burden or expense of traditional 401(k) or 403(b) plans. For example, starter plans do not require employer contributions or certain testing.

The IRA contribution limit is $6,500 and indexed annually for inflation. Under SECURE 2.0, the starter plan limits are not indexed, but might be revised for consistency.

Starter plans, coupled with the small employer tax credit, are estimated to produce a 22% increase in Black and Hispanic American worker access to retirement plans.

Small Immediate Financial Incentives

For plan years beginning on and after Dec. 29, 2022, employers can now offer “de minimis financial incentives,” such as gift cards or t-shirts, in connection with an employee’s participation in a 403(b) or 401(k) plan.

Student Loan Payments

In 2018, the Internal Revenue Service approved a proposed amendment to Abbott Laboratories’ 401(k) plan to allow a matching contribution based on student debt repayments rather than employee deferrals to the plan. Employers have relied on the PLR to justify a similar plan design.

SECURE 2.0 codifies the PLR, and, for plan years beginning on and after Jan. 1, 2024, employers may match qualified student loan payments as if the QSLPs were elective deferrals.

Matching contributions must be made at the same rate and with the same vesting and eligibility requirements as matching contributions on elective deferrals, and can be used to satisfy safe-harbor matching requirements. Employers can rely on employees’ annual self-certification that the QSLPs have been made.

This is an optional provision that plan sponsors can implement in 401(k), 403(b), governmental 457(b), and SIMPLE IRA plans for plan years beginning on and after Jan. 1, 2024. The IRS will issue implementing regulations and a model plan amendment for those plans wishing to adopt.

Part-Time, Long-Term Coverage

For plan years beginning after Dec. 31, 2024, employees who perform at least 500 hours of service during two consecutive 12-month periods must be eligible to participate for purposes of deferrals. Service before 2023 is disregarded.

An employee who becomes eligible to participate under the part-time eligibility rule must be credited with a year of vesting service for each 12-month period in which the employee completes 500 hours of service.

The SECURE 2.0 rule does not apply to employees covered by a collective bargaining agreement, nonresident aliens who receive no earned income, or certain students. It applies to ERISA-covered 403(b) plans, as well as 401(k) plans. Both rules are mandatory.

SECURE 2.0’s rule is not effective until plan years beginning on or after Jan. 1, 2025, but the Original SECURE Act rule still kicks in for plan years beginning on or after Jan. 1, 2024.

Therefore, part-time employees may become eligible under a plan due to the original three-year rule in the 2024 plan year and under SECURE 2.0’s two-year rule in the 2025 plan year.

Employers should start counting hours on the date an employee’s employment commenced. If the employee does not complete the required hours of service during the initial 12-month period of employment, employers can then use the first day of the plan year for hours counting purposes going forward.

Next Steps

SECURE 2.0 is one of the most significant pension reform bills in recent history. It offers incentives for employers, especially small to mid-size employers without a current retirement plan in place, to establish and maintain retirement plans.

Taking advantage of the law’s incentives could benefit employees and help with recruitment, retention, and overall morale.