Fiduciary Hot Topics | Q2 2024

Every quarter, we release what we believe to be "hot topics" for you to discuss with your plan sponsors. Using the downloadable document provided as well as these short summaries on this page, you can start the conversation regarding these topics. This quarter's edition features SECURE 2.0 guidance, specifically the affected policies regarding Notice 2024-02.
Congress Releases SECURE 2.0 Technical Corrections Discussion Draft.

On December 6, 2023, the committees of jurisdiction (in the Senate the Committee on Health, Education, Labor and Pensions (HELP) and in the House the Ways and Means Committee and the Education and the Workforce Committee) released a “discussion draft” of proposed technical corrections to the retirement plan-related portions of SECURE Act 2.0.

The issues addressed, some of which were raised in a May 2023 letter from Congressional leaders to the Department of the Treasury and IRS, are technical and are not intended to change the substance of SECURE Act 2.0 as enacted. 

Automatic IRA Act of 2024

Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means Committee, has re-introduced the Automatic IRA Act of 2024. The bill generally would require employers with more than 10 employees that do not sponsor a retirement plan to automatically enroll their employees in IRAs (automatic IRAs) or other automatic contribution plans or arrangements, like 401(k) plans. Smaller employers would be eligible for the existing startup tax credit if they adopt a plan or a newly proposed $500-for-three-year automatic IRA tax credit if they adopt an automatic IRA (whether under state or federal law).

If enacted, the legislation would apply to plan years beginning after 2026. The new credit for small employer automatic IRAs would apply to tax years beginning after 2024.

DOL’s Automatic Portability Proposal

On January 29, 2024, the Department of Labor (DOL) released proposed regulations that, when finalized, will implement SECURE Act 2.0’s statutory prohibited transaction exemption (PTE) for “automatic portability transactions” through “automatic portability providers ” that meet certain conditions. Comments on the proposal are due by March 29, 2024.

When workers leave jobs with a retirement account balance valued between $7,000 and $1,000, retirement plans can cash-out and automatically rollover these benefits to default IRAs if the plan document allows it and the employees do not take action after receiving required notices. The follow-on automatic portability transactions are facilitated by automatic portability providers that roll over workers’ retirement savings from their IRAs to their new employers’ retirement plans. 

IRS Releases Guidance on Prohibited Pension-Linked Emergency Savings Account Anti-Abuse Rules

On January 12, 2024, the IRS released Notice 2024-22, providing guidance with respect to anti-abuse provisions for Pension-Linked Emergency Savings Accounts (PLESAs).

IRS Notice 2024-02 Delivers Start of SECURE Act 2.0 Guidance 

On December 20, 2023, IRS released Notice 2024-02 containing a slew guidance on 12 provisions of SECURE Act 2.0, including:
1.    Expanding automatic enrollment in retirement plans
2.    Modifications to plan start-up credits for small employer plans 
3.    Military spouse retirement plan eligibility credit for small employers
4.    Small immediate financial incentives for contributing to a plan

To read all 12, download our full Q2 2024 Hot Topics here.

Optional Treatment of Employer Matching or Nonelective Contributions as Roth Contributions

SECURE 2.0 allows 401(k), 403(b) and governmental 457(b) plan sponsors to provide participants the option to receive matching or nonelective employer contributions as designated Roth contributions, effective as of December 29, 2022. 

Market Rate Cash Balance Plans

Notice 2024-02 will allow cash balance plans that have not used market rate interest credits (e.g., returns on an S&P 500 Index fund) for funding purposes in the past because of IRS anti-backloading rules, to convert to a market rate prospectively without special grandfather rules.

These rules are very technical and can only be summarized in our Hot Topics. They do, however, allow sponsors of plans with increasing pay credits significant flexibility in converting to market-based interest credits. If interested, sponsors should consult with their legal and actuarial advisors as to how best to go about doing so.

Expanding Automatic Enrollment in Retirement Plans 

SECURE Act 2.0 provides that, effective for plan years beginning after 2024, 401(k) and 403(b) plans established after the law’s enactment date of December 29, 2022, must default participants into the plan at a contribution rate of at least 3% of pay, escalating each year by 1% up to at least 10%. The new rule does not apply to plans adopted before the date of enactment, for the first 3 years of a new employer’s existence, or to employers with 10 or fewer employees.

Tax Credit for Small Plan Coverage of Military Spouses 

SECURE Act 2.0 provides a new small employer (i.e., < 100 employees) tax credit for DC plans that provide that military spouses are, within two months of hire, immediately eligible for and fully vested in employer nonelective and matching contributions. The tax credit is the sum of $200 per military spouse, plus up to $300 based on employer contributions, per year for three years.

Small Immediate Financial Incentives for Contributing to a 401(k) or 403(b) Plan

SECURE 2.0 allows employers to offer de minimis financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans.

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