SECURE 2.0: Retirement Plan Changes for 2023

Employee Benefits Alert

Client Alert


The SECURE 2.0 Act of 2022 was enacted at the end of last year as part of the Consolidated Appropriations Act of 2023. The act sets forth a number of changes affecting retirement plans that go into effect over several years. This article focuses on key changes for 2023.

  • Required Minimum Distributions (RMDs) - The act increases the age at which required minimum distributions begin – currently 72. For an individual who reaches age 72 after December 31, 2022, and age 73 before January 1, 2023, the RMD age is 73. For an individual who reaches age 74 after December 31, 2032, the RMD age is 75. The act also liberalizes the application of the RMD rules to commercial annuities and significantly reduces the excise tax for the failure to take RMDs.
  • Roth Elections for Employer Contributions - Effective for contributions made after enactment, 401(a) plans, 401(k) plans, 403(b) plans, and governmental 457(b) plans may allow participants to designate employer nonelective and/or matching contributions as Roth contributions. The designation is only permitted for contributions that are 100% vested when made.
  • Collective Investment Trusts (CITs) for 403(b) Plans - The act amends the Internal Revenue Code to explicitly allow 403(b) plans with custodial accounts to invest in CITs. This is a significant change that will allow 403(b) plans to benefit from the use of lower-cost CITs. Further guidance is expected regarding the use of CITs, including the possible amendment of existing securities laws, which generally prohibit most private sector 403(b) plans from purchasing interests in CITs.
  • Qualified Longevity Annuity Contracts (QLACs) - QLACs, which can be funded from accounts in 401(k) and 403(b) plans, provide for deferred income annuities, and the amount invested is not subject to RMD requirements. Existing regulations limit the premiums an individual can pay for a QLAC to the lesser of $125,000 (as indexed) or 25% of the individual’s account balance. The act eliminates the 25% limit and increases the dollar limit to $200,000 (as indexed). The act also clarifies that participants may rescind a contract during the 90-day “free-look” period.
  • Overpayments - The Employee Plans Compliance Resolution System (EPCRS) generally requires plans that have mistakenly overpaid a participant to take reasonable steps to recoup such overpayment, such as collecting the overpayment from the participant or employer in order to maintain the tax-qualified status of the plan. Under the act, a 401(a), 403(a), 403(b), and governmental plan (but excluding a 457(b) plan) will not fail to be a qualified plan merely because the plan fails to recover an “inadvertent benefit overpayment” or otherwise amends the plan to permit the increased benefit. In certain cases, the overpayment also is treated as an eligible rollover distribution. The act also includes fiduciary relief for the failure to make the plan whole. For plans covered by the Employee Retirement Income Security Act (ERISA), if the plan sponsor elects to offset future plan payments to recover the overpayment, restrictions will be imposed on the offset. Moreover, certain restrictions are imposed on collection efforts from the participant.
  • Self-Correction - Effective upon enactment, the act allows any “eligible inadvertent failure” to be self-corrected under EPCRS at any time – regardless of whether the error is significant or insignificant – unless the Secretary of the Treasury identified the failure before self-corrective measures commenced or the self-correction was not completed in a reasonable period after the failure was identified. A loan error that is an eligible inadvertent failure may now be self-corrected under EPCRS, and the Department of Labor (DOL) must treat the self-corrected failure as meeting the requirements of the DOL’s Voluntary Fiduciary Correction Program, although it may impose reporting or other procedural requirements.
  • Hardship Distributions - Effective for plan years beginning after enactment, the act allows a plan administrator to rely on an employee’s self-certification that the employee has had a safe harbor event that constitutes a hardship for purposes of a hardship withdrawal from a 401(k) or 403(b) plan. The plan administrator can also rely on the employee’s certification that the distribution is not in excess of the amount required to satisfy the financial need and that the employee has no alternative means reasonably available to satisfy the financial need. There is a similar rule that applies for purposes of unforeseeable emergency distributions from governmental Section 457(b) plans.
  • Unenrolled Participants - Employees who choose not to participate in an employer-sponsored plan are required to receive certain communications from the plan. The act amends the requirements under ERISA and the Internal Revenue Code for defined contribution plan sponsor notices to unenrolled participants to consist solely of an annual notice of eligibility to participate during the annual enrollment period (and providing any document the participant is entitled to upon request).

It is also important to note that plan amendments for the act for non-governmental or non-collectively bargained plans can be made by the last day of the first plan year beginning on or after January 1, 2025, provided the plan is operated consistently with the act; for governmental or collectively bargained plans, the amendments can be made by the last day of the first plan year beginning on or after January 1, 2027.

If you have any questions about SECURE 2.0 or other benefits matters, please contact one of the attorneys in the Employee Benefits and Executive Compensation Practice Group at Bradley.