More Time to Amend for Plan Sponsors – IRS Extends SECURE Act Amendment Deadlines
Earlier this month, the Internal Revenue Service (IRS) published Notice 2022-33 (the “Notice”) extending the deadline for the adoption of certain amendments for retirement plans required under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The SECURE Act and CARES Act amended several key provisions under the Internal Revenue Code applicable to employer-sponsored retirement plans. Many plan sponsors now have until the end of 2025 to amend their retirement plans to reflect these provisions. However, different deadlines apply to governmental retirement plans, including 457(b) plans.
Provisions Affected by the Extension
Provisions of the SECURE Act affected by the extension include the: (1) increase in the required minimum distribution (RMD) age from 70 ½ to 72; (2) elimination of the “stretch IRA” or “stretch RMD” for certain beneficiaries; (3) expanded eligibility for certain long-term, part-time employees; (4) qualified birth or adoption distributions; and (5) increase in the automatic escalation cap for qualified automatic enrollment arrangement (“QACA”) safe harbor plans from 10% to 15%. The deadline extension also applies to the waiver of RMDs for the 2020 plan year for defined contribution plans under the CARES Act.
Notice 2022-33 does not extend the deadline to adopt amendments for COVID-related distributions and loans permitted under the CARES Act. Plan sponsors that permitted such distributions and loans are still required to adopt amendments by the end of the first plan year beginning on or after Jan. 1, 2022.
It is important to note that the Notice does not extend the effective date for compliance with any required provisions. Plan sponsors must still operationally comply with mandatory provisions of the CARES Act and SECURE Act. When adopted, these amendments must apply retroactively to the required effective date of the applicable provision.
Extended Deadline Dates to Note
The extended deadlines are as follows: For non-governmental qualified and 403(b) plans, the amendment deadline is now Dec. 31, 2025. For governmental qualified and 403(b) plans, the amendment deadline is now 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after Dec. 31, 2023. For governmental 457(b) plans, the amendment deadline is now the later of (1) 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after Dec. 31, 2023 or (2) the first day of the first plan year beginning more than 180 days after the date of notification by the IRS that the plan was administered inconsistent with Code section 457(b).
Recommendations for Aligning with New Requirements
Considering this extension, plan sponsors should consider waiting to amend their retirement plans in anticipation of additional guidance, such as model amendments, from the IRS. Even though plans will not be amended before the end of the plan year, plan sponsors should review their administrative processes and consult third-party service providers to ensure their plans are being administered in accordance with the new requirements.
Plan sponsors should also be aware of pending “SECURE Act 2.0” legislation. Proposed changes include raising the RMD age to 75, increasing catch-up provisions for those nearing retirement age, and further expanding eligibility for long-term, part-time employees. The House and Senate have each passed their versions of a SECURE Act 2.0. While the bills have yet to be reconciled, a SECURE Act 2.0 is expected to become law before the end of 2022.
Please contact Regan Canfill or any member of Phelps’ Employee Benefits and Executive Compensation team if you have questions or need compliance advice or guidance.
