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NCA Alert: Retirement Plan Changes Included in Funding Bill

The Senate and House are in the final stages of passing an omnibus appropriations bill, which is likely to be the final piece of legislation this year and the 117th Congress. In the thousands of pages is a bipartisan agreement to build upon the retirement program improvements made with the SECURE Act in 2017. Often referred to as SECURE 2.0, the provisions will affect clubs that offer 401(k) and other plans to employees. A quick reference of major provisions is below. NCA will host a webcast in the coming weeks to further educate members on the measure.

  • Requires 401(k) and 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible. The initial automatic enrollment amount is at least 3%, but not more than 10%. Each year thereafter, the amount is increased by 1% until it reaches at least 10%, but not more than 15%. This will be effective for plan years beginning after December 31, 2024.
  • A new federal “Saver’s Match” of 50% of IRA or retirement plan contributions up to $2,000 per individual. The match will be phased out between $41,000 and $71,000 in the case of taxpayers filing joint returns. The Saver’s Match will be effective for taxable years beginning after December 31, 2026.
  • Multiple Employer Plans (MEPs) receive relief from the “one bad apple” rule so that the violations of one employer do not affect the tax treatment of employees of compliant employers effective December 31, 2022.
  • The IRA catch-up limit is increased by $1,000 for individuals who have attained age 50. The limit is then indexed for taxable years beginning after December 31, 2023.
  • Higher catch-up limits are applied at ages 60, 61, 62, and 63. These limits are effective for taxable years beginning after December 31, 2024.
  • Beginning after December 31, 2023, employers may make matching contributions under a 401(k), 403(b) or SIMPLE IRA by reason of repaying qualified student loan payments.
  • Upon enactment, employers may offer de minimis financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans. Under current law, this practice is prohibited.
  • Current law requires employers with SIMPLE plans to make employer contributions to employees of either 2% or compensation or 3% of employee elective deferral contributions. For taxable years beginning after December 31, 2023, an employer may make additional contributions to each employee of the plan in a uniform manner, provided the contribution not exceed the lesser of up to 10% of compensation or $5,000.
  • Annual deferral limits for SIMPLE plans and catch-up contributions are increased by 10% in the case of employers with no more than 25 employees. Employers with 26 to 100 employees would be permitted to provide higher deferral limits, but only if the employer either provides a 4% matching contribution or a 3% employer contribution.
  • Allows automatic portability for employers to distribute a participant’s account balance into their new employer’s retirement plan, unless the participant affirmatively elects otherwise. This provision applies to balances of less than $5,000.
  • For part-time workers, the 3-year rule is reduced to 2 years for plan years beginning after December 31, 2024. Part time employees completing 500 hours of service or more would be eligible to participate in the employer’s 401(k) plans.
  • Employers will have the option to offer their non-highly compensated employees pension-linked emergency savings accounts. Employers may automatically opt employees into these accounts at no more than 3% of their salary, and the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer).
  • Other provisions are included.

Contact NCA President & CEO Joe Trauger at [email protected] if you have any questions or comments.

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