IRS Delays the Roth Catch-Up Provision
On August 23rd, 2023, the Internal Revenue Service (IRS) released Notice 2023-62, which pushed back the effective date of the mandatory Roth catch-up contribution provision by 2 years. This controversial SECURE
2.0 provision requires that catch-up contributions made by employees with wages exceeding $145,000 for the preceding calendar year must be designated as Roth.1
The IRS also addressed a drafting issue in SECURE 2.0 that could have been interpreted as eliminating all catch-up contributions entirely. The IRS provided a statutory interpretation to confirm that catch-up contributions will still be allowed beyond 2023.2
In addition, the notice confirmed further guidance would be issued which clarifies the following:
- The mandatory Roth catch-up provision will not apply to those without prior-year FICA wages (e.g., those who are self-employed and certain State or local government employees who are exempt from FICA.)
- Even if a participant has affirmatively elected pre-tax contributions, the plan is allowed to treat the participant’s catch-up contributions as Roth if they are over the $145,000 limit.
- In multi-employer retirement plans, FICA wages from various employers aren’t aggregated to determine if an eligible participant’s contributions must be made on a Roth basis.
The 2-year delay and additional guidance come as a welcome relief for plan sponsors. NWCM recommends keeping this provision front of mind as vendors continue to make updates to their systems.
Action Item: Plan sponsors should review with their recordkeeper and/or third-party administrators to ensure that their systems are prepared for these changes.
The DOL Seeks Comment on SECURE 2.0 Provisions
On August 10th, 2023, the Department of Labor (DOL) issued a request for information, seeking public feedback on several SECURE 2.0 provisions that deal with establishing new or revised reporting requirements.3
Areas the DOL is seeking clarity on include provisions that affect pooled employer plans, emergency savings accounts linked to retirement plans, defined contribution plan fee disclosure improvements, consolidating DC plan notices, and defined benefit annual funding notices.
The public comment period will run for 60 days and concludes on October 10th. Once the comment period has passed, the DOL will examine the responses and return with guidance later this year or in 2024.
Action Item: As more guidance is provided, plan sponsors should continue to communicate with their recordkeepers, NWCM, and legal counsel, as appropriate.
Retirement Related Bills Introduced in Congress
Two retirement-related bills have recently been re- introduced in Congress.
The Women’s Retirement Protection Act:
- This bill seeks to address the retirement gap impacting women, aiming to enhance their financial security in retirement.
- The legislation also includes measures to introduce spousal protections within defined contribution plans, aligning with those in place for defined benefit plans. 4
The Auto Reenroll Act of 2023:
- This bill proposes allowing employers to periodically enroll non-participating employees into eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs) every three years.
- Participants would have the option to opt-out with an affirmative election. 5
NWCM’s Fiduciary Focus: “Rothification”
Click here to view the latest edition of NWCM’s Fiduciary Focus. This edition discusses the recent “Rothification” trend within retirement plans, including the latest Roth-related changes in SECURE 2.0
1. Samuels, Remy. “IRS Releases Guidance about Catch-Up Contributions Under Secure 2.0”. Plan Sponsor, 25 August 2023.
2. Snell & “IRS Delays Roth Catch-Up Contribution Requirement:. JD Supra, 25 August 2023.
3. Ortolani, Alex. “DOL Seeks Comment on Select SECURE 0 Enactments”. Plan Adviser, 11 August 2023.
4. Anderson, Brian. “Bill to Protect Women’s Retirement Security Reintroduced Again”. 401kSpecialist, 10 August
5. Anderson, “Auto-Reenroll Act of 2023’ Introduced in Senate”. 401kSpecialist, 27 July 2023.