Employers Get a 2-Year Breather on Complying with the Secure 2.0 Change to Catch-Up Contributions

Daniel L. Morgan 

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The Internal Revenue Service (“IRS”) issued Notice 2023-62 last week, which addresses a change made by the SECURE 2.0 Act of 2022 (“Secure 2.0”) to the 401(k) plan rules applicable to so-called “catch-up contributions” that may be made by older plan participants.

Background—Catch-Up Contributions and Roth Contributions

Employers are permitted to write their 401(k) plans to allow employees who are age 50 or older to make catch-up contributions in excess of the annual limit on elective contributions. Therefore, for example, someone who is at least 50 years old in 2023 can elect this year to contribute an additional $7,500 on top of the normal limit of $22,500 that a person who is younger than 50 can elect to contribute.

Employers are also permitted to allow 401(k) plan participants to make their elective contributions as Roth contributions, which go into the plan on an after-tax basis. If these Roth contributions satisfy requirements on how long they must be held in the plan, they ultimately can be distributed, along with earnings on the contributions, tax free.

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U.S DOL Offers Some Good News for Smaller Businesses with 401(K) Plans

Daniel L. Morgan 

It’s not often that business owners get good news from the government, but small and even some medium-sized businesses with 401(k) plans got a helping hand from the U.S. Department of Labor (“DOL”) earlier this year when the DOL eased the rules for identifying which 401(k) plans are required to have audited financial statements.

Background

The Employee Retirement Income Security Act of 1974 (“ERISA”), everyone’s favorite federal law, has a dual reporting structure for 401(k) plans depending on the number of participants in the plan. Plans with 100 or more participants at the beginning of the year—so-called large plans—are required to prepare audited financial statements and file them with the plan’s Form 5500, Annual Return/Report of Employee Benefit Plan. Plans with fewer than 100 participants escape the audit requirement and, in most instances, can file a Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

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