NEWS FROM D.C.

Latest guidance on legislative initiatives

Stay current on legislative and regulatory news from Washington with this round-up of recent announcements, actions and effective dates. Perspectives on SECURE 2.0 Act provisions, required minimum distribution (RMD) regulations and other IRS guidelines can help you understand the implications for your workplace.

On August 19, 2024, the Internal Revenue Service (IRS) issued interim guidance for sponsors of 401(k) and similar retirement plans who provide matching contributions based on eligible student loan payments made by their participating employees. Notice 2024-63 implements Section 110 of the SECURE 2.0 Act of 2022, which for the first time permits employers to provide matching contributions for employees based on their payments on student loans.

The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after December 31, 2023 (for calendar year plans).

Using a question-and-answer format that includes several illustrative examples, the notice addresses a variety of plan administration issues, such as:

  • General student loan matching contribution eligibility rules, including dollar and timing limitations
  • What is required for an employee certification that student loan matching contribution requirements have been met
  • Reasonable student loan matching contribution procedures that a plan may adopt
  • Special non-discrimination testing relief for 401(k) plans that include student loan matching contributions

The notice applies for plan years beginning after December 31, 2023. In it, the IRS said it plans to issue proposed regulations providing further guidance on Section 110, but plan sponsors may rely on the notice until the proposed regulations are issued.

On July 18, 2024, the IRS and Treasury Department published long-awaited regulations on RMDs from qualified plans and IRAs. The regulation package contains final regulations and proposed regulations.

Impacted plans

401(a), 401(k), 403(b) and 457, as well as traditional and Roth IRAs.

Effective date

Final regulations apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025. For prior calendar years, the previously issued final regulations apply and presume a reasonable, good faith interpretation of amendments issued under the SECURE Act of 2019 (“SECURE”) and the SECURE 2.0 Act of 2022 (“SECURE 2.0”).

Final regulations

The final regulations generally reflect amendments to the RMD rules that Congress made as part of SECURE, but also include some provisions from SECURE 2.0, which were not reflected in the 2022 proposed regulations, including:

  • Provisions reflecting the increased RMD age
  • Clarification of RMD age for individuals born in 1959
  • Application of “at least as rapidly” to the 10-year payout rule for beneficiaries
  • Rule allowing surviving spouses to use the Uniform Lifetime Table to calculate their RMDs as beneficiaries
  • Lifetime RMD exemption for in-plan Roth accounts
  • Provision eliminating the “minimum income threshold test” for increasing annuity payments
  • Reforms to the rules for qualifying longevity annuity contracts, some aspects of the new relief for “partial annuitization”
  • Rule that reduces the RMD excise tax for timely corrections

Proposed regulations

Generally, the proposed rules focus on various provisions from SECURE 2.0 that the IRS and Treasury Department determined could not be addressed in final regulations without first being published in proposed form with a comment period. The proposed regulations were published separately from the final regulations on July 18, 2024, and once finalized, would apply for the purposes of determining RMDs for calendar years beginning on or after January 1, 2025. Comments on the proposed regulations will be due 60 days from date of publication in the Federal Register by September 17, 2024. A public hearing on the proposed regulations is scheduled for September 25, 2024.

We will continue to monitor the proposed regulations as they go through their comment period and are eventually finalized.

Here’s a summary of what plan sponsors need to know about optional and required SECURE 2.0 Act provisions, including actions and effective dates, to help stay abreast of regulations.

Required provisions

Provision

Details

Plan amendments

Summary: Plan amendments required for changes under SECURE 2.0 and subsequent regulatory guidance.

Effective date: For qualified plans, formal amendments are not due until December 31, 2026 (for calendar year plans).

What you need to know: In advance of the deadline, plan sponsors should follow their normal amendment practices (e.g., committee approval, board resolution, etc.) and maintain documentation of their actions.

Written direction must be provided and agreed to before Bank of America can implement any changes to plan design and administrative practices.

Roth catch-up contributions

Summary: All catch-up contributions after age 50 must be Roth for certain highly compensated participants (participants whose wages are in excess of $145,000 in the prior calendar year from the employer sponsoring the plan).

Effective date: January 1, 2026.

What you need to know: Plans that offer catch-up contributions but that do not offer Roth contributions need to update their plan to permit Roth if they want to continue to permit catch-up contributions after 2025.

Optional provisions

Provision

Details

Emergency expense withdrawals

Summary: This optional feature allows participants to take an in-service withdrawal up to $1,000 for an unforeseeable, immediate financial need. Frequency limitations apply and amounts may be repaid.

Effective date: Emergency expense withdrawals are currently available via the contact center as well as digitally.

What you need to know: An election form is available that plan sponsors must complete to enable this provision.

Higher catch-up limit

Summary: Age 50 catch-up limit will be increased by 150% for participants in the calendar years they attain ages 60, 61, 62 and 63.

Effective date: Effective January 1, 2025.

What you need to know: A plan sponsor must affirmatively elect to add this provision to their plan, even if age 50 catch-up contributions are currently offered. Complete an election form to enable this provision.

Check with your payroll provider to ensure readiness.

Automatic relief for federally declared disasters

Summary: SECURE 2.0 provided permanent rules for the use of retirement funds in the event of a federally declared disaster.

Effective date: For disasters occurring on or after January 26, 2021.

Benefits OnLine® enhancement to support this provision is active.

What you need to know: Plans can permit participants to take distributions of up to $22,000 without the 10% early withdrawal additional tax. Loan relief (increased maximums and extended repayment periods) is also available. Plan sponsors should determine if they want to add this to their plan design.

If you elect to make this option available to your participants, they will be able to request a withdrawal or loan via Benefits OnLine®.

Bank of America will validate that a participant’s address is within a declared disaster area, and a participant will self-certify they were impacted by the disaster. Participants may choose to repay the distribution within three years.

Reduced notice requirements for unenrolled participants

Summary: Defined contribution plans are no longer required to provide notices to unenrolled participants, other than an annual reminder notice of the participant’s eligibility to participate in the plan.

Effective date: Currently effective.

What you need to know: Currently, an “unenrolled participant” means an employee who is eligible to participate in an individual account plan, has been furnished an SPD and any initial enrollment information for the plan, is not participating in the plan, and satisfies such other criteria as the Secretary of the Department of Labor may determine appropriate, as prescribed in guidance issued in consultation with the Secretary of the Department of Treasury. There is no guidance yet from the Departments of Labor and Treasury providing for any additional criteria required to be considered an “unenrolled participant.”

Plan sponsor clients would need to elect this optional plan provision by providing direction to Merrill.

Matching contributions for Qualified Student Loan Payments (“QSLP”)

Summary: Participants who are repaying student loan debt can receive a matching contribution based on a QSLP in lieu of an elective deferral.

Effective date: Targeted for 2025, pending regulatory guidance.

What you need to know: On August 19, 2024, the IRS issued Notice 2024-63 with a Q&A on issues related to matching QSLP in defined contribution plans. Some of the necessary issues are addressed by the guidance and the Notice indicates that the Department of the Treasury and the IRS they anticipate issuing proposed regulations as well.