A large number of retirement industry organizations—including prominent lobbying groups and 401(k) recordkeepers—are calling for the government to delay a key SECURE 2.0 change set to kick in Jan. 1 2024 that would cause many 50-and-older retirement plan participants to lose the ability to make catch-up contributions.
Saying they need more time to meet the logistical challenges of identifying who earned more than $145,000 the previous year and retooling payroll systems to make sure catch-up contributions are made on a Roth basis, industry stakeholders are pleading for relief from the impending deadline.
In three different letters cumulatively signed by hundreds of organizations that were sent to the Treasury Department, the Internal Revenue Service (IRS) and the House Ways and Means Committee, the government is being asked to delay the effective date of Section 603 of SECURE 2.0. That provision requires employees making over $145,000 who wish to make age-50-or-older catch-up contributions to make them on a Roth basis.
As The Wall Street Journal noted in a July 16 article, more than 200 employers, 401(k) recordkeepers and payroll providers recently sent a letter to Congress requesting a two-year delay for implementation of Section 603. Signed by companies including Delta Air Lines, Anheuser-Busch, and Fidelity Investments, which administers 24,800 corporate retirement accounts for employers, the letter says many won’t be able to change their systems in time to meet the deadline.
“For many of these plans, unless this requirement is delayed…their only means of compliance will be to eliminate all catch-up contributions for 2024,” the letter said.
Citing Dave Gray, head of workplace retirement offerings and platforms at Fidelity, the WSJ article states that 30% of Fidelity’s 24,800 401(k) clients currently lack a Roth feature, and unless they adopt a Roth option before the new law goes into effect, they will have to eliminate catch-up contributions for all of their workers.
The American Benefits Council and NAGDCA recently sent a letter to the House Ways and Means Committee seeking a two-year delay of the Roth catch-up requirement described in Section 603 of SECURE 2.0, either via Congress passing the requested relief or the Treasury Department or the IRS using their authority to unilaterally provide the necessary relief.
“Plan sponsors need transition relief to work with regulators, their vendors, and their participants to effectively implement the new requirements.”
ERIC’s Andy Banducci
“For many of these plans, unless this requirement is delayed very quickly (i.e., this summer), their only means of compliance will be to eliminate all catch-up contributions for 2024. If a delay is not announced until, for example, the fourth quarter, it will be too late to prevent this adverse result, since compliance systems need to be designed well before the effective date,” the letter states.
And today, the ERISA Industry Committee (ERIC) and 49 coalition partners issued a letter to the Department of Treasury and the Internal Revenue Service requesting transition relief relating to the provision.
“ERIC strongly supported the SECURE 2.0 Act, but the provisions affecting catch-up contributions require extensive guidance from regulators and new payroll-related systems,” said Andy Banducci, Senior Vice President of Retirement and Compensation Policy at ERIC. “Plan sponsors need transition relief to work with regulators, their vendors, and their participants to effectively implement the new requirements.”
In its rationale for the requested extension, the letter cites a number of administrative challenges:
- Employers will need to coordinate with their payroll providers and retirement plan recordkeepers, given that the $145,000 limit is not related to any other limit that currently exists for qualified retirement plans.
- Currently, employers do not have any system in place to determine who had FICA wages of more than $145,000 in the preceding year.
- Employers’ current payroll systems do not distinguish between employees based on age.
- Retirement plan recordkeepers will need to update the way they process catch-up contributions.
- Employers will need to communicate the required changes to relevant retirement plan participants within the next six months—but most employee communications will also be dependent on how the Department of Treasury responds to the numerous other questions presented on other matters related to SECURE and SECURE 2.0.
Along with ERIC, the 50 organizations signing the letter from the coalition includes the American Retirement Association, Empower, Fidelity, Alight Solutions, Franklin Templeton, Insured Retirement Institute, Investment Company Institute, Lincoln Financial Group, NAGDCA, Paychex and the U.S. Chamber of Commerce.
Per the WSJ, a spokesperson for the Treasury Department said it plans to issue guidance in the near future but declined to comment on requests for a delay.
SEE ALSO:
• Leading Organizations Request Roth Catch-Up Contribution Delay
• Glitch-Fixing: How 2024 Catch-Up Contributions Could Be Restored in SECURE 2.0
• SECURE 2.0 Technical Corrections Legislation Coming Soon
• IRI Calls On Biden Administration to Review Retirement Security Bills
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
