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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means these funds are contributed with after-tax dollars, so they will not reduce current taxable income but can be withdrawn tax-free in the future.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.

SECURE 2.0 Headed for Enactment

SECURE 2.0 Headed for Enactment

While it came down to the wire, both the House and Senate have now approved the much-anticipated SECURE 2.0 Act of 2022 as part of the mammoth $1.7 trillion omnibus spending bill.

For months, it was anticipated that Congress would attach a final SECURE 2.0 package to a year-end spending bill, but that wasn’t confirmed until earlier this week, and even then, it wasn’t necessarily guaranteed. Congress had faced a Dec. 23 deadline to approve the legislation to fund the government for the remainder of fiscal year 2023 (which began Oct. 1) and prevent a government shutdown. And for a short while, it appeared that lawmakers might not beat the deadline and would punt the funding bill until next year, meaning the SECURE 2.0 would have to start over from scratch.

But the U.S. Senate approved the 4,000-page “Consolidated Appropriations Act, 2023” (H.R. 2617 as amended) on Dec. 22 by a vote of 68-29. The House followed suit, approving the legislation Dec. 23 by a near party-line vote of 225-201, with one member voting present and nine Republican members voting in support of the bill.  With final congressional passage now in hand, the legislation is cleared for presidential signature. In the meantime, Congress also approved another short-term continuing resolution (until Dec. 30) to give lawmakers time to prepare and enroll the final bill before sending it to the White House.

Retirement professionals will want to pay close attention to when the legislation is signed. As explained in our “What Else Is in the New SECURE 2.0?” post, the date that the legislation is signed into law will serve as the “date of enactment,” and several of the provisions contained in the legislation become effective on that date. Many other provisions have effective dates in 2023 or later years.

As a top priority of the American Retirement Association, enactment of the SECURE 2.0 Act, which builds off the 2019 SECURE Act, will further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

A sampling of the key retirement provisions among the 90-plus contained in the final spending bill include:

  • Establishing a new “Starter K,” supported by the ARA which will allow employers that do not currently sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan);
  • Providing a 100% tax credit for the start-up of new retirement plans among small businesses;
  • Requiring new 401(k) and 403(b) plans to automatically enroll employees in the respective plan upon eligibility, subject to certain conditions;
  • Providing an enhanced Saver’s match that modifies the existing Saver’s Credit by changing it from a credit paid in cash as part of a tax refund to a government matching contribution that must be deposited into a taxpayer’s IRA or retirement plan;
  • Allowing the establishment of new emergency savings accounts linked to individual account plans;
  • Allowing employers to treat student-loan payments as elective deferrals for purposes of matching contributions;
  • Implementing higher catch-up limits at age 60, 61, 62, and 63 (beginning after Dec. 31, 2024);
  • Gradually increasing the required minimum distribution (RMD) age from the current 72 to age 75;
  • Allowing 403(b) plans to participate in multiple employer plans (MEPs) and pooled employer plans (PEPs);
  • Easing the current restrictions and expanding the current limits for qualified longevity annuity contracts (QLACs) and eliminating a penalty on partial annuitization;
  • Allowing for the establishment of auto-portability arrangements and increasing the dollar limit for mandatory distributions;
  • Establishing a Retirement Savings Lost and Found;
  • Providing permanent rules for the use of retirement funds in connection with qualified federally declared disasters;
  • Providing a safe harbor for corrections of employee elective deferral failures; and
  • Expanding the Employee Plans Compliance Resolution System (EPCRS) to, among other things, allow more types of errors to be corrected internally through self-correction.

Original Article Provided By: SECURE 2.0 Headed for Enactment | AMERICAN SOCIETY OF PENSION PROFESSIONALS & ACTUARIES (asppa.org)

Record Increases Projected for 2023 Retirement Plan Limits

Record Increases Projected for 2023 Retirement Plan Limits

Record Increases Projected for 2023 Retirement Plan Limits
Announcement of the official limits is still a few months away, but early projections from Mercer suggest that nearly all qualified retirement plan limits will increase by unprecedented amounts next year.

The 2023 limits will reflect increases in the Consumer Price Index for All Urban Consumers (CPI-U) from the third quarter of 2021 to the third quarter of 2022. Using this measure, inflation is projected to reach its highest level since indexing began, causing 7%–11% increases for most limits, based on their rounding levels, according to benefits consultant Mercer, whose past projections have been rather accurate.

In addition, the non-SIMPLE plan catch-up limit—which has a large rounding threshold—will jump more than 15%, the firm notes.

Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, the CPI-U through June, and estimated CPI-U values for July, August and September, the firm projects that the contribution limits for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will increase from $20,500 this year to $22,500 in 2023.

The 415(c) DC plan maximum annual addition is projected to increase from $61,000 to $67,000. Mercer notes that the limit will be $66,000 if inflation is less than 0.25% per month for July, August and September.

Additionally, the 414(q)(1)(B) highly compensated employee and 414(q)(1)(C) top-paid group limit is projected to be $150,000 in 2023, up from $135,000 this year.

Other 2023 projected increases include:

  • the 414(v)(2)(B)(i) catch-up contribution limit (for plans other than SIMPLE plans) rises from $6,500 to $7,500 in 2023;
  • the 415(b) DB plan maximum annuity limit rises from $245,000 to $265,000;
  • the 401(a)(17) and 408(k)(3)(C) compensation limit rises from $305,000 to $335,000 (Mercer also notes that the limit will be $330,000 if inflation is less than 0.25% for July, August and September); and
  • the 416(i)(1)(A)(i) officer compensation for top-heavy plan key employee limit rises from $200,000 to $215,000.

The estimates cannot be finalized until after September CPI-U values are published in October. The IRS typically announces official limits for the coming year in late October or early November.

Separate estimates by The Senior Citizens League (TSCL) published last month show that next year’s annual Social Security cost-of-living adjustment (COLA) could be 10.5% next year, the highest in more than four decades, based on the June CPI data.

Original Article Provided By: https://www.asppa.org/news/browse-topics/record-increases-projected-2023-retirement-plan-limits