This advisory reminds retirement plan sponsors of upcoming deadlines for amending qualified retirement plans and highlights other action items for plan sponsors to consider.
Qualified Plan Amendments and Other Changes
Amendments for changes in law
In some years, plans are required to be amended to reflect certain changes in law. This year does not appear to be such a year for most retirement plans. However, plan sponsors who made discretionary changes to their plans during the 2024 plan year should ensure that such amendments are documented in a formal plan amendment before the end of the year.
While many legal changes have occurred over recent years (for example, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, the SECURE 2.0 Act of 2022, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act), plans are not generally required to be amended immediately to reflect these changes. The deadline to amend has generally been extended to December 31, 2026 for most plans. Regardless, some provisions of these Acts do need to be implemented operationally before the formal amendment deadline.
Enhanced catch-up contributions under SECURE 2.0
Under the SECURE 2.0 Act, plans have the option to permit participants who will attain age 60 but not 64 during the plan year (for example, participants born 1962–1965 would be eligible for the enhanced amounts in the 2025 plan year) to contribute additional amounts beyond the normal limit on catch-up contributions. This provision will become effective January 1, 2025, but the process to implement the feature has varied by recordkeeper. Some recordkeepers have instituted an “opt-out” adoption process (i.e., the feature will be implemented automatically unless the plan sponsor expressly opts out), while others have solicited plan sponsors to adopt the provision affirmatively. Plan sponsors should discuss with their service providers to understand whether their plan is being defaulted into adding the enhanced catch-up contribution.
While allowing the additional catch-up contributions is optional, the feature generally must be applied uniformly to all members of an employer’s controlled group. For companies that are part of a controlled group, it is recommended to consult with other members of the group to determine whether any other plans are adopting the feature.
Plan sponsors will also want to review their plan documents to determine how catch-up limits are described. Depending on the terms of the plan, a formal amendment may be necessary to add the feature or to opt out of adding it. While the deadline to amend plans has been extended, plan sponsors should make sure they understand how their plans describe catch-up contribution limits and consult their legal advisors with any questions. Finally, it will be worthwhile to consider how limits are described in participant communications to ensure participants know and understand the amounts they can contribute.
Mandatory Roth treatment for catch-up contributions of certain employees
The SECURE 2.0 Act requires that any catch-up contributions from employees who earned more than $145,000 (as adjusted) in the prior calendar year be made on a Roth basis. While this requirement was technically effective January 1, 2024, the IRS released Notice 2023-62 implementing an administrative transition period until 2026. Under this relief, plans will need to begin complying with these rules beginning January 1, 2026, though plan sponsors can decide to implement the requirement sooner if desired. While implementation is not required for another year, there is significant complexity associated with tracking affected employees and implementing a system to ensure that their catch-up contributions are made on a Roth basis. Plan sponsors should reach out to their recordkeepers and payroll providers now to ensure that their service providers are taking the appropriate steps to comply with this requirement by 2026.
IRS final rule on RMDs after death
If a participant dies before taking a full distribution from a retirement plan such as certain IRAs or a qualified plan, the Code previously required that the beneficiary receive the entire balance of the account at the end of a five-year period unless an exception applied. The original SECURE Act changed this to require distribution of the participant’s entire balance over the 10-year period following the participant’s death unless the beneficiary is part of a limited list of qualified designated beneficiaries. The rule applies to deaths occurring January 1, 2020 or later.
Released on July 19, 2024, the final regulations contained a requirement that distributions occur each year of the 10-year period in some instances. The final regulations did not extend any distribution periods, so beneficiaries who have not been taking required distributions will need to make sure they receive the entire account balance at the end of the original 10 years after the participant’s death. While the IRS has offered relief for plans and beneficiaries who did not take distributions pending the final rule, this relief lapses January 1, 2025.
Because compliance with required minimum distribution rules is a qualification requirement for qualified plans, plan sponsors will want to ensure their recordkeepers know and understand the new guidance. In some instances, a plan amendment may be required as well.
Other SECURE 2.0 features
SECURE 2.0 provided plan sponsors with the ability to implement a wide array of optional plan features, including student loan matching contributions, emergency savings accounts, terminal illness withdrawals, and domestic abuse withdrawals. While plan sponsors generally have additional time to adopt formal amendments to implement these features (generally until December 31, 2026), we recommend plan sponsors take action now to discuss any added features with legal counsel or their recordkeeper to confirm whether any amendments are necessary and whether the recordkeeper is able to administer any added features as intended. If any features are being implemented, ensure that summary plan descriptions and other participant communications are updated to reflect these options.
Other items to consider
As you review your plan document, you may consider whether adding or reviewing any of the following provisions under your retirement plan are appropriate:
- Plan use of forfeiture provisions
- Beneficiary designation provisions
- ESG investment policy
- Cybersecurity policies
Use of plan forfeitures
The IRS has issued guidance generally requiring that plan forfeiture balances be used for permissible purposes within 12 months after the end of the year in which the forfeitures occurred. Applicable law generally permits plans to use forfeitures to pay reasonable plan expenses or to offset employer contributions, though individual plan documents may have other rules on how forfeitures may be used.
The use of plan forfeitures has been a recent trend in litigation. While each plan and each plan sponsor will have its own unique circumstances, the end of the year presents a good opportunity for plan sponsors to review the terms of their plans’ proper use of forfeitures. Plan sponsors may wish to reach out to their legal counsel to discuss these provisions, and in some cases, it may be appropriate to consider amending the plan document to reflect the plan sponsor’s intent on use of forfeitures.
Conclusion
The end of the year presents an opportunity for plan sponsors to review their qualified retirement plans and consider whether their retirement plans have any legally required amendments and whether they want to add any of the features discussed above even before a legally required deadline. Please do not hesitate to contact your Alston & Bird attorney to discuss any of the plan amendments or other action items.
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If you have any questions, or would like additional information, please contact one of the attorneys on our Employee Benefits & Executive Compensation Team