401(K): What Do I Need To Know About SECURE 2.0? Overview Of Significant Provisions, Part I

As we have previously reported, Congress passed the SECURE 2.0 Act of 2022 (“SECURE 2.0”), a vast collection of retirement-related provisions having a profound effect on 401(k) plans, as part of the larger Consolidated Appropriations Act, 2023 (“CAA”) in late December of 2022. President Biden signed the legislation on December 29, 2022.

SECURE 2.0 supplements and expands upon many of the reforms included as part of the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) enacted in late 2019 (see our blog entitled “Congress Finally Passed SECURE Act – The Most Sweeping Pension Legislation in Over a Decade is Now Law” for a general overview). But SECURE 2.0 contains even more retirement-related provisions than did its predecessor, and arguably represents a more significant package of reforms, which are generally intended to help make retirement savings available to a wider range of employees and to streamline plan administration.

GEEK OUT! For those who wish to dig a bit deeper, the Senate Finance Committee has issued a nineteen-page summary of SECURE 2.0, available here.

NOTE: This article, along with future related articles, is intended only as a very broad overview of the most significant provisions contained in SECURE 2.0 applicable to most 401(k) plans. It is not intended to cover all 401(k)-related provisions, provide a detailed analysis of the provisions discussed, or address provisions applicable to other types of retirement plans, such as defined benefit retirement plans, Internal Revenue Code Section 403(b) plans, SIMPLE plans, SEPs, multiemployer plans, pooled employer plans, governmental plans, or individual retirement accounts (“IRAs”).


As stated in our previous blog, due to the sheer number of SECURE 2.0 provisions affecting 401(k) plans, we plan to address the more significant of those provisions in a series of blog articles. This first article in the series will focus on the more significant provisions affecting most 401(k) plans that are immediately effective, along with a brief discussion of how SECURE 2.0 changes the coverage rules regarding long-term, part-time employees that were originally implemented by the first (i.e., 2019) SECURE Act. Although the SECURE 2.0 provisions relating to long-term, part-time employees are not yet in effect (they will be mandatory as of plan years beginning after December 31, 2024), they require employers to track hours beginning in 2021.

1. Expansion of IRS’s EPCRS Program.
Effective immediately, SECURE 2.0 makes certain statutory changes to the IRS’s Employee Plans Compliance Resolution System (“EPCRS”). Generally stated, EPCRS is a formal program adopted by the IRS to help enable 401(k) plan sponsors correct certain plan defects or failures in an expeditious and cost-effective manner. (See our reference page entitled “401(k) EPCRS Overview” for details about EPCRS.)

Stated broadly, SECURE 2.0 expands EPCRS to cover any “eligible inadvertent failure.” As defined in the legislation, an “eligible inadvertent failure” includes any failure that occurs despite compliance practices and procedures that meet EPCRS standards, and is not egregious, misusing of plan assets, or otherwise abusive.

The changes to EPCRS also allow more types of failures — including, notably, plan loan failures — to be corrected under EPCRS’s self-correction program (“SCP”). Under SCP, plan sponsors are not required to obtain advance IRS approval as to correction methodology, or to submit proof that correction was made.

Additionally, under SECURE 2.0, eligible inadvertent failures generally may be self-corrected at any time, regardless of the significance of the failure — unless the failure was first identified during an IRS audit, or if self-correction is not completed within a reasonable time period.

OBSERVATION: The statutory changes to EPCRS making self-correction available for more types of operational failures and under more favorable circumstances is welcome news, and hopefully will encourage more plan sponsors to take advantage of this opportunity to avoid costly sanctions and potential plan disqualification.

2. Recovery of 401(k) Plan Overpayments.
Closely related to Item 1, above, and also effective immediately, SECURE 2.0 generally relieves plan fiduciaries of the obligation to recoup most inadvertent overpayments (which would be operational failures) from participants and/or beneficiaries. Generally stated, the new rules are as follows:

  • A plan and its fiduciaries may decide whether or not to recover inadvertent overpayments made from a plan. In most cases, the plan sponsor is not required to restore such overpayments;
  • Various restrictions apply should a plan decide to seek recovery of an overpayment;
  • Except under limited circumstances, a fiduciary may not threaten litigation or engage a collection agency in an effort to recover an overpayment;
  • Overpayments generally may not be recouped following the death of a spouse or other beneficiary; and
  • Overpayments more than three years old may not be recouped, except in cases of fraud or misrepresentation.

3. Election to Receive Roth Matching and/or Nonelective 401(k) Contributions.
Effective for contributions made after December 29, 2022, 401(k) plans may allow participants to elect to receive any employer matching and/or nonelective contributions on a “Roth” after-tax basis. Such matching and/or nonelective contributions that have been designated as “Roth” contributions will be included in the participant’s income in the calendar year in which they were contributed. (See our reference article entitled “401(k) Contributions and Funding” for more information on “Roth” 401(k) contributions.)

SECURE 2.0 provides that in order to be characterized as a “Roth” contribution, an employer matching and/or nonelective contribution must be 100% nonforfeitable (vested) when made and at all times thereafter.

COMMENT: Further guidance as to the manner by which participants may make these elections, whether they may later be revoked and related issues will hopefully be forthcoming and will doubtless be appreciated by participants and plan administrators alike.

4. Increase in Age Linked to “Required Beginning Date” from 72 to 73.
Qualified retirement plans, including 401(k) plans, are required to distribute a portion of a participant’s account (“required minimum distribution” or “RMD”) by no later than his or her “required beginning date.” (See our compliance task entitled “Required Minimum Distribution” for more information.) Prior to SECURE 2.0, this date was usually the first day of the month after the participant became age 72 years old.

Effective January 1, 2023, the participant age linked to the “required beginning date,” at which mandatory retirement plan distributions must commence, increases from age 72 to age 73.

NOTE: Beginning on January 2, 2033, this age is scheduled to increase from age 73 to age 75.

5. Permanent Rules for Qualified Federal Disaster Distributions.
The COVID-19 crisis ushered in certain temporary rules that permitted special, expanded loan and distribution provisions applicable to 401(k) plans. These provisions have now expired. (See our reference article entitled “Coronavirus (COVID-19) Regulations & 401(k) Plan Considerations” for a general discussion of these and related provisions.)

Generally effective for disasters occurring on or after January 26, 2021, SECURE 2.0 broadens this type of relief by establishing permanent rules for in-service distributions made in response to certain Federally declared disasters. Individuals affected by such disasters in accordance with specific rules may withdraw up to $22,000 from their 401(k) plan accounts without being subject to the otherwise applicable ten-percent penalty tax for early distributions. These distributions are subject to regular income taxation over three years, and are not subject to the otherwise applicable 20 percent withholding requirement.

Similarly, 401(k) plans may permit affected individuals (qualifying under the same rules as above) to take a loan from their 401(k) plan accounts up to the lesser of $100,000 or 100 percent of their vested account balance. (By way of contrast, the generally applicable 401(k) plan loan limits are $50,000 or 50 percent of the vested account balance.) Such participants also may qualify for a one-year extension of the otherwise applicable loan repayment period (generally five years).

6. Terminal Illness Withdrawals.
Similar to Item 5, above, effective for distributions made after December 29, 2022, SECURE 2.0 creates yet another exception to the ten-percent early distribution penalty tax — for distributions to participants who are terminally ill. To qualify under the new rules, an individual must have been certified by a physician as having an illness or other physical condition which can reasonably be expected to result in death within 84 months. If the distribution is repaid within three years, the participant is entitled to a refund of the amount of regular income tax paid on the distributed sum.

7. Reduction of Repayment Period for Qualified Birth or Adoption Distributions.
The original (i.e., 2019) SECURE Act allows 401(k) plan participants to receive in-service distributions for qualified birth or adoptions in amounts up to $5,000 per child. (See our article entitled “How Will the SECURE Act Affect Me? Highlights of Some of the Top New Provisions Affecting 401(k) Plans (PART ONE)” for details.)

Previously, these in-service distributions could be repaid at any time, thus eliminating income taxation on the distributed amount. SECURE 2.0 generally limits the permissible repayment period for distributions made after December 29, 2022 to three years, beginning on the date of distribution. For withdrawals already taken, the repayment period ends on December 31, 2025.

8. Expansion of Business Tax Credit for Small Employer Retirement Plan Startup Costs.
The original (i.e., 2019) SECURE Act provided a business tax credit for plan startup costs of up to $5,000 for three years in certain cases. (See our article entitled “How Will the SECURE Act Affect Me? Highlights of Some of the Top New Provisions Affecting 401(k) Plans (PART ONE)” for details.)

Effective for taxable years beginning after December 31, 2022, SECURE 2.0 makes the following changes to the above tax credit:

  • For employers having up to 50 employees, the tax credit now covers up to 100 percent of administrative costs, up from the previous 50 percent (but is still subject to an overall $5,000 maximum); and
  • A new tax credit for eligible businesses having up to 100 employees (the credit is phased out for employers having 51 to 100 employees) is based on the amount of employer matching or profit-sharing contributions made per employee. The credit is capped at $1,000 per employee, and phases down gradually over five years — from 100 percent in the first and second years, 75 percent in the third year, 50 percent in the fourth year, and 25 percent in the fifth year.

9. Military Spouse Retirement Plan Tax Credit.
Effective for taxable years beginning after December 31, 2022, SECURE 2.0 creates a new tax credit for employers having 100 or fewer employees that offer military spouses (other than spouses who are “highly compensated employees”) the opportunity to fully participate in their 401(k) within two months of their date of hire. Such spouses must have the right to make elective deferrals and to receive, with full and immediate vesting, any employer matching or nonelective contributions as of their effective dates of plan participation.

The tax credit for each military spouse equals the sum of (i) $200; plus (ii) 100 percent of all employer contributions (up to $300) made on behalf of such spouse, up to a maximum tax credit of $500. This credit applies for three years for each military spouse.

10. Coverage for Long-Term, Part-Time Workers.
The original (i.e., 2019) SECURE Act provided that long-term, part-time employees who complete at least 500 hours of service in three consecutive 12-month periods must be allowed to participate in their employer’s 401(k) plan. (See our article entitled “How Will the SECURE Act Affect Me? Highlights of Some of the Top New Provisions Affecting 401(k) Plans (PART TWO)” for details.)

SECURE 2.0 reduces the above service requirement from three to two consecutive 12-month periods. The law also clarifies that pre-2021 service is disregarded for vesting purposes, effective as if included in the original (i.e., 2019) SECURE Act.

NOTE: Although the SECURE 2.0 provisions relating to long-term, part-time are not yet in effect, they will be mandatory as of plan years after December 31, 2024, and the clarifying language confirms that employers are required to track hours starting in 2021.

EDITORIAL COMMENT: As previously noted, the items discussed above are a few of the more prominent 401(k)-related provisions contained in SECURE 2.0 that are immediately effective or relate to coverage of long-term, part time employees. Other provisions not appearing above generally will become effective next year or in later years, and the more notable of these provisions that will apply to most 401(k) plans will be covered in successive blogs.


The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.

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