The fix is in… Or at least it will be.
That’s the message Congress sent regarding some glitches in SECURE 2.0 to the Treasury Department and the Internal Revenue Service in the form of a letter Tuesday from the Chairs and Ranking Members of the House Committee on Ways and Means and the Senate Committee on Finance.
“The bipartisan congressional letter from the leaders of the committees is helpful in that it clarifies what Congress intended for how several provisions of the SECURE 2.0 Act are to be implemented.”
IRI’s Paul Richman
The Insured Retirement Institute obtained a copy of the letter on Wednesday, which states Congress’ intention to introduce technical corrections legislation to correct erroneous statutory language in the SECURE 2.0 Act, including the inadvertent annulment of catch-up contributions.
“The bipartisan congressional letter from the leaders of the committees is helpful in that it clarifies what Congress intended for how several provisions of the SECURE 2.0 Act are to be implemented,” Paul Richman, IRI Chief Government and Political Affairs Officer, told 401(k) Specialist Wednesday. “IRI is pleased to see those ambiguities clarified in the letter and that a commitment was made to introduce legislation that will provide not only even more certainty, but more importantly guidance to the agencies responsible for implementing the new law.”
The letter, addressed to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel and signed by Ways and Means Committee Chair Jason Smith (R-MO), Ranking Member Richard Neal (D-MA), Senate Finance Committee Chair Ron Wyden (D-OR), and Ranking Member Mike Crapo (R-ID), does not specify exactly when the technical corrections legislation will be introduced.
“We intend to introduce technical corrections legislation to correct erroneous statutory language, which may include items not addressed in this letter, so that the provisions carry out Congressional intent,” the letter states.
Perhaps chief among them is a needed fix regarding catch-up contributions—an issue first identified by the American Retirement Association back in January.
Per the letter:
Section 603 of SECURE 2.0 requires catch-up contributions under a retirement plan to be made on a Roth basis, for taxable years beginning after 2023, if the participant’s wages from the employer sponsoring the plan exceeded $145,000 for the preceding calendar year. A conforming change to section 603 might be read by some to disallow catch-up contributions (whether pre-tax or Roth) beginning in 2024. Congress did not intend to disallow catch-up contributions nor to modify how the catch-up contribution rules apply to employees who participate in plans of unrelated employers. Rather, Congress’s intent was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or a Roth basis. This Congressional intent was noted in the Committee Report to accompany S. 4808, the Enhancing American Retirement Now Act (S. Rept. 117-142).
Among the other SECURE 2.0 sections flagged for fixes in the letter are Section 102, which increases the startup credit for small employer plans; Section 107, dealing with required minimum distributions; and Section 601, allowing Simple IRA and Simplified Employee Pension plans to add Roth IRAs.
Regarding the startup credit (Section 102), the letter said the provision could be read to subject the additional credit for employer contributions to the dollar limit that otherwise applies to the startup credit. “However, Congress intended the new credit for employer contributions to be in addition to the startup credit otherwise available to the employer,” the letter states.
Regarding Section 107, Congress intended to increase the applicable age at which RMDs from a retirement plan are required to begin from age 72 to age 73, for individuals who turn 72 after December 31, 2022 and who turn 73 before January 1, 2033, and to increase the applicable age from age 73 to age 75 for individuals who turn 73 after December 31, 2032.
“However, with respect to the increase from age 73 to age 75, the provision could be read to apply such increase to individuals who turn 74 (rather than 73) after December 31, 2032, which is inconsistent with Congressional intent,” the letter states.
Section 601 could be read to require contributions to a SIMPLE IRA or SEP plan to be included in determining whether or not an individual has exceeded the contribution limit that applies to contributions to a Roth IRA. However, Congress intended to retain the result under the law as it existed before SECURE 2.0 was enacted regarding SIMPLE IRA and SEP contributions (taking into account that section 601 permits SIMPLE IRA and SEP plans to include a Roth IRA).
“Thus, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit.”
In a bill consisting of 130 pages, there are bound to be some drafting errors that create unintended consequences that need to be resolved. After all, SECURE 2.0 itself included some technical corrections to the original SECURE Act passed in 2019.
But if not addressed with legislation, the glitches could create big problems—such as eliminating the ability for 401(k) participants to make catch-up contributions in 2024.
SEE ALSO:
• Glitch-Fixing: How 2024 Catch-Up Contributions Could Be Restored in SECURE 2.0