Compliance News | January 12, 2024

IRS "Grab-Bag" Guidance Extends Pension Plan Amendment Date

The IRS has issued its promised “grab-bag” of questions and answers on many of the changes made by the SECURE 2.0 Act (SECURE 2.0). The guidance addresses 12 provisions of SECURE 2.0, which has close to 90 provisions in total, the most important of which we summarized in our January 4, 2023 insight.

Although the new guidance is extensive and detailed, it has few implications for sponsors of large plans. The most significant change extends the date by which a plan must be amended.

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There is no change in the dates by which provisions are operationally effective.

This insight covers the guidance that’s most significant for large employers and plans.

The IRS will accept comments on the guidance until February 24, 2024.

Change in amendment date

Recent enacted laws have included delays in when plans must be amended for changes in law. The delayed amendment rules provide relief from the anti-cutback prohibitions if the amendments reflect plan operation from the date the provision was effective. Recent laws have also tried to coordinate the amendment dates for all the changes. Because the needed IRS guidance has not been published yet, the grab-bag guidance, which was issued as Notice 2024-2, once again delays the common amendment dates.

The following table shows the new dates, which are based on December 31, not the last day of the plan year:

Plan Type Amendment Date
Non-governmental single-employer plan  December 31, 2026
403(b) plan not maintained by a public school  December 31, 2026 
Collectively bargained plan  December 31, 2028 
Collectively bargained 403(b) plan of a tax-exempt organization  December 31, 2028 
Governmental single-employer plans December 31, 2029 
403(b) plan of a public school  December 31, 2029 
Governmental 457(b) plans  December 31, 2029* 


* However, if the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary of the Treasury that the plan was administered in a manner inconsistent with the requirements of Internal Revenue Code section 457(b) is later than December 31, 2029, that later date is the amendment date.

Other clarifications of interest to sponsors of large plans

Automatic enrollment

The new automatic enrollment rules for 401(k) and 403(b) plans are not effective until the 2025 plan year. However, there is an exception for “grandfathered” plans. Grandfathered plans are 401(k) plans with a cash or deferred arrangement (CODA) adopted before the enactment of SECURE 2.0 (December 29, 2022) and 403(b) plans adopted prior to that date.

The grab-bag guidance answers a series of questions about how the “grandfather” works and what happens when plans merge or when a plan divides. In some circumstances, whether the grandfather applies will depend on which plan the sponsor designates as the surviving plan.

Small immediate financial incentives

In general, a sponsor of a 401(k) CODA or a 403(b) plan cannot provide incentives for an employee to participate other than offering a matching contribution. SECURE 2.0 created an exception for de minimis financial incentives (not paid for with plan assets) but did not define “de minimis.”

The grab-bag guidance defines de minimis as having a value of less than $250. However, a financial incentive cannot be provided to an employee for whom an election to defer is already in effect. The IRS asks for comments on what rules should govern a de minimis final incentive that is provided by a party other than the employer.

Cash balance plans

SECURE 2.0 contains a narrow provision aimed at cash balance plans. For purposes of testing the anti-backloading accrual rule in a plan with a variable benefit formula, the provision allows the plan to assume that the projected interest crediting rate is a reasonable projection of that variable crediting rate, not to exceed 6 percent. Prior to the change, the plan had to assume that the prior year’s rate continued for all future years.

The grab-bag guidance interprets SECURE 2.0 as providing anti-cutback relief for this change for certain cash balance plans and asks for comments on whether this provision impacts hybrid plans other than cash balance plans.

Correcting errors in implementing auto-enrollment

SECURE 2.0 provides relief for correcting reasonable administrative error made in implementing an automatic enrollment or automatic escalation feature with respect to an eligible employee or by failing to afford an eligible employee the opportunity to make an affirmative election because the employee was improperly excluded from the plan (implementation error). Under the provision, the time to correct is extended and, if correctly timely, the correction does not need to include correction of the missed elective contributions. The SECURE 2.0 correction method is generally consistent with the limited safe harbor correction method set forth in the Employee Plans Compliance Resolution System (EPCRS).

The grab-bag guidance specifies that a matching contribution (adjusted for earnings) must be made within a reasonable period as determined by all the facts and circumstances and states that six months will be treated as a reasonable period. The guidance makes clear that the correction safe harbor also applies to terminated employees.

Designated Roth matching and nonelective contributions

SECURE 2.0 allowed plan sponsors to permit participants to treat matching and nonelective Roth contributions in the same manner as elective contributions. No employer must offer the Roth alternative and no employee must be required to elect the Roth alternative. If, however, the employer establishes the option and the employee elects the option, the designated contribution is includible in an individual’s gross income (but, generally not for employment tax purposes) for the taxable year in which the contribution is allocated to the individual’s account.

This rule applies even if the contribution is deemed to have made on the last day of the prior taxable year of the employer for purposes of the deduction rules. Only a fully vested employee may designate these contributions as Roth contributions; vesting is determined at the time the contribution is allocated to the employee’s account. Such a distinction based on vesting does not violate the “other right or feature” component of the non-discrimination rules.

Going forward

February 24, 2024 is the deadline for commenting on the grab-bag guidance, including both items specified above.

The IRS continues to work on guidance for SECURE 2.0 and earlier laws, especially those provisions effective in 2024 plan years and earlier. In addition to this guidance, the IRS recently issued a proposed rule on the requirements for long-term, part-time employees, which we discussed in our December 20, 2023 insight. Other guidance is in process, but the drafting and uncertain clearance process leaves it unclear when the Treasury or the IRS will issue additional guidance.

Have questions about this guidance or SECURE 2.0?

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.