SECURE Act 2.0 – Updates for 2024
The SECURE 2.0 Act of 2022 contained many provisions which were focused on making changes to the rules regarding U.S. based retirement plans and the benefits plan sponsors can or must provide. Some of these law changes are effective in the 2024 calendar year, and we have summarized some of those changes below:
- Updating the dollar limit for mandatory distributions. Employers previously had the ability to process distributions of vested balances worth up to $5,000 without the consent of the participant. Starting in 2024, that force-out limit was increased to $7,000.
- Participants who hold investments in a Roth account are no longer required to receive Required Minimum Distributions from amounts held in those Roth accounts.
The Long- Term Part-Time employee rules for 401(k) Plans also take effect in 2024. This rule requires employees who have worked 500 hours or more in three consecutive years to be eligible to make elective deferrals to their 401(k) plan. The definition of a Long- Term Part -Time employee will change in 2025 to look at part-time employees who worked at least 500 hours in two consecutive years. This eligibility is determined by looking at hours worked since January 1, 2021.
- Plans may be amended to allow for one penalty free withdrawal of up to $1,000 per year for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Certain limitations apply, as well as restrictions on taking personal emergency distributions in subsequent plan years.
- Plans may also be amended to allow for penalty free withdrawals of up to the lesser of 50% of the vested value of a participants account or $10,000 in the case of domestic abuse.
Form 5500 changes for 2023
The Department of Labor (DOL) made changes to the 2023 Form 5500 series with respect to how participants are counted for purposes of whether a plan is a “large plan” and subject to an annual audit requirement. When a new plan is started and has 100 or more eligible participants on the first day of the plan year, it is considered a large filer. Small plan filers operate under what is referred to as the 80-120 rule. If the plan started as a small filer, it continues to be a small filer if the beginning of year plan participant count is between 80 and 120 participants.
An independent auditor is required to perform an audit for any plan which is deemed to be a large plan. An eligible participant was defined as any employee who was eligible to participate in a company’s plan, regardless of whether they actually participate or have an account balance in the plan.
This methodology has changed for plan years beginning January 1, 2023. For 2023 Form 5500 returns, an eligible participant is any participant who has an account balance as of the beginning of the plan year.
In addition to the participant counting changes, starting in 2023 there are a couple of additional IRS Compliance questions which were added to the Schedule R which is attached to Form 5500. These include questions about how certain compliance tests are satisfied, as well as asking for more plan document details for plans which use a pre-approved plan document.
