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Included in the "omnibus" year-end spending measure released by U.S. House and Senate leadership is a final SECURE 2.0 retirement security package that merges the many retirement-related bills that cleared the House and Senate Committees earlier this year. Assuming all goes according to plan, the bill is expected to pass Congress and be signed into law by the President before the current continuing resolution expires at the end of the week. Notable provisions of interest to public plans:
- Increases the required minimum distribution age to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033, with no incremental steps in between.
- Modifies the Healthcare Enhancement for Local Public Safety (HELPS) Retirees Act to remove a problematic requirement that premiums must be deducted from pension checks and paid by retirement systems directly to insurers for retirees to qualify for a tax exclusion. Effective for distributions made after the date of enactment.
- Changes requirements for inadvertent retirement plan overpayments and permits rollovers of overpayments to remain valid. Effective on the date of enactment.
- Modifies the exception from the 10 percent early distribution tax for distributions made to a qualified public safety employee after separation from service after age 50 to also apply to public safety officers with at least 25 years of service with the employer sponsoring the plan. Effective for distributions made after the date of enactment.
- Extends the public safety officer exception to the 10 percent early distribution tax to corrections officers who are employees of state and local governments. Effective for distributions made after the date of enactment.
- Permits first responders to exclude service-connected disability pension payments from gross income after reaching retirement age. Effective for amounts received in taxable years beginning after December 31, 2026.
- Increases the annual limits for catch-up contributions to the greater of $10,000 or 50 percent more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. Effective for taxable years beginning after December 31, 2024.
- Provides all catch-up contributions to qualified retirement plans are subject to Roth tax treatment -- i.e. contributions must be made with after-tax dollars. Effective for taxable years beginning after December 31, 2023. An exception is provided for employees with compensation of $145,000 or less (indexed).
- Permits employees to self-certify that they have had an event that constitutes a deemed hardship for purposes of taking a hardship withdrawal from a 401(k) or 403(b) plan or an unforeseeable emergency distribution from governmental Section 457(b) plans and permits certain penalty-free withdrawals in the case of domestic abuse. Effective for plan years beginning after the date of enactment, except in the case of domestic abuse when the effective date is for distributions made after December 31, 2023.
- Eliminates the first day-of-the-month rule for 457(b) plans to provide more flexibility to participants to make changes in elective deferral amounts. Effective for taxable years after the date of enactment.
- Allows employees to receive matching contributions under a 401(k), 403(b) plan, or SIMPLE IRA by reason of repaying their student loans. Governmental employers are also permitted to make matching contributions in a section 457(b) plan with respect to such repayments. Effective for contributions made for plan years beginning after December 31, 2023.
- Authorizes employers to permit employees to elect for some or all of their vested matching and nonelective contributions to be treated as Roth contributions under a 401(k), 403(b), or governmental 457(b) plan. Effective on the date of enactment.
- Allows 403(b) plans to participate in multiple employer plans (MEPS) and pooled employer plans (PEPS), including relief from the “one bad apple rule” so that the violations of one employer do not affect the tax treatment of employees of compliant employers. Effective for plan years beginning after December 31, 2022.
- Permits 403(b) plans to invest in Collective Investment Trusts (CITs), effective after the date of enactment -- but there are some issues remaining with regard to securities law that will need to be resolved before 403(b)s can use CITs.
- Permits an exception to the 10 percent tax penalty applicable to early distributions from tax-preferred retirement accounts if the distribution is used for unforeseeable or immediate financial needs relating to personal or family emergency expenses. Effective for distributions made after December 31, 2023.
- Provides an exception for terminally ill individuals from the 10 percent early withdrawal penalty. Effective after the date of enactment.
- Permits retirement plans to distribute up to $2,500 per year for the payment of premiums for certain specified long term care insurance contracts. Distributions from plans to pay such premiums are exempt from the additional 10 percent tax on early distributions. Only a policy that provides for high quality coverage is eligible for early distribution and waiver of the 10 percent tax. Effective three years after the date of enactment.
- Enables employers to offer de minimis financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in 403(b) plans. Effective for plan years beginning after the date of enactment.
Section-by-Section Summary
Bill Text
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