Retirement plan documents must periodically be amended to comply with Internal Revenue Code regulations. Due to legislation issued over the past several years, all plans will be required to have certain amendments. This article will explore some changes that may affect your plan.
SECURE Acts
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. Subsequent thereto, the SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. This law introduced nearly 90 retirement-oriented provisions. Pursuant to IRS Notice 2024-2, all plan amendment changes for the SECURE Act and the SECURE 2.0 Act are not required to be made to a plan (with one exception) until December 31, 2026. The one exception to this extended due date deadline applies to the tax-exempt entities that sponsor 457(b) plans, whereby any good-faith amendments must occur by December 31, 2025. A few of the more prominent provisions are listed below. Please reach out to your plan document provider or third-party administrator to further explore which provisions may impact your specific plan operations.
Required Minimum Distributions (RMD)
The age at which individuals in retirement plans must begin withdrawing minimum distributions was increased to age 73 (effective in 2023). Starting in 2024, Roth IRA accounts will be exempt from the RMD rules while the participant is alive.
Long-Term Part-Time (LTPT) Employees
Employees 21 years or older with two consecutive 12-month periods of at least 500 hours of service are required to be allowed to make elective deferrals into retirement plans starting January 1, 2025. Plan sponsors should review the payroll records and/or their census file to look for participants who worked 500 hours since January 1, 2023. Recent IRS proposed regulations have been issued to LTPT employees to provide additional guidance on this subject.
Student Loan Payments
This provision of the SECURE 2.0 Act is also called a qualified student loan payment (QSLP) and allows employers to make matching contributions under a 401(k) or 403(b) plan based upon the amount the employee paid for their qualified student loan payments. Employees are required to certify that such payments have been made on a qualified loan. IRS Notice 2024-63 provides additional guidance on this topic.
Withdrawals for Certain Emergency Expenses
Another provision of the SECURE Act provides an exception from the 10% tax on certain early distributions made after 2023 that are used for emergencies, which are unforeseeable or immediate family needs relating to personal or family emergency expenses. Plan sponsors may rely upon a participant’s self-certification.
Cash-Out Limits
Plan sponsors have been able to distribute plan assets of former employers for years. However, with the SECURE 2.0 Act of 2022, this cash-out limit increases from $5,000 to $7,000 for distributions processed after December 31, 2023.
Types of Plan Amendments
If plan amendments are required to reflect changes in the law, these amendments are considered “interim amendments.” If there are operational changes that plan sponsors want to make or if the sponsor wants to adopt certain optional provisions of the law, these are called “discretionary amendments.” If you are operating a plan using an individually designed plan document, your Employee Retirement Income Security Act (ERISA) legal counsel will generally provide the required amendments to your plan. If you are operating a plan using a pre-approved adoption agreement that is sponsored by an outside entity, such as your third-party administrator, then that provider will discuss the requirements and options with you. Then, they will prepare the appropriate amendments to operate your plan.
How Forvis Mazars Can Help
Forvis Mazars has professionals who can assist with compliance, provide assurance services, and identify issues that can help your organization. We are committed to helping clients navigate regulatory complexity with agility and insight. If you have any questions regarding plan amendments or need assistance, please reach out to one of our professionals.