As the end of 2024 approaches, it’s again time for plan sponsors to review their plan documents and plan operations to ensure compliance with increasingly complex qualification requirements and moving deadlines. While there are no mandatory plan amendments due this year, plan sponsors must remain diligent about discretionary amendment deadlines, operational compliance with changes in law, and ensuring later-adopted plan amendments accurately reflect plan operations.
Year-End Plan Amendments
There are no generally applicable amendments that are required to be adopted by the end of 2024 per the Required Amendments List. However, Plan amendments may need to be adopted by the end of 2024 for plan design changes. Generally, plan documents should be amended by plan year-end for any “discretionary” changes implemented during 2024. These discretionary changes may include plan design changes (other than required compliance amendments described below), changes in plan administration impacting the plan document, and changes to plan provisions pursuant to collective bargaining agreements.
While many provisions under the SECURE 2.0 Act of 2022 (“SECURE 2.0”) are currently effective, plan amendments are not yet due. Pursuant to Notice 2024-2, Plan sponsors have until December 31, 2026 (December 31, 2028 for collectively bargained plans, and December 31, 2029 for governmental plans) to adopt SECURE 2.0-related amendments. Notice 2024-2 similarly extended the plan amendment deadline for amendments related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
However, plan sponsors may consider amending their plans now for certain changes in law, or to reflect plan operations, even though amendments are not yet required. For example, although most plan sponsors have until December 31, 2026 to adopt CARES Act amendments, delaying those amendments may make it more challenging to accurately reflect how the plan was administered in 2020. Sample IRS plan amendment language (via LRMs) addressing a number of SECURE 2.0, SECURE Act, and CARES Act related changes is available on the IRS website.
Operational Compliance
The IRS maintains an Operational Compliance List (“OC List”) (last updated February 2023) that describes statutory and regulatory changes in requirements for 401(a) and 403(b) plans. Plan sponsors should review this list to ensure their plans are operationally compliant with the relevant provisions.
- No Requirements Listed Yet for 2024. There are no additions to the OC List that are effective in 2024. However, the OC List does not include annual, monthly, or other periodic changes that routinely occur (such as cost-of-living increases, spot segment rates, and applicable mortality tables.) You can find these on the Employee Plans Recent Published Guidance webpage.
As noted above, many of the operational provisions of SECURE 2.0 have already become effective. Below is a list of some of the more noteworthy SECURE 2.0 provisions that came into effect in 2024. For the latest updates and to access Groom’s complete library of SECURE 2.0 resources, please click here.
- Pre-death required minimum distribution exemption for Roth contributions (Sec. 325).
- Matching of student loan payments (Sec. 110).
- Increase in involuntary cash-out limit to $7,000 (Sec. 304).
- Penalty-free withdrawals of up to $1,000 for certain emergency expenses (Sec. 115).
- Penalty-free withdrawals of up to $10,000 in cases of domestic abuse (Sec. 314).
Looking Ahead – Timing Considerations for Future Plan Changes
Many plan sponsors are already looking ahead and evaluating potential future changes to their retirement plans. As part of this process, plan sponsors should take into account the following:
- Prospective Amendments for 2025 Plan Design Changes. While plan sponsors generally have until the end of the plan year to adopt discretionary plan design amendments, there are numerous exceptions. For example, plan sponsors that wish to implement a safe harbor 401(k) plan design based on matching contributions must amend their plans before the beginning of the plan year and provide advance notice to participants. In addition, changes that reduce future benefits or are otherwise subject to anti-cutback rules generally must be adopted on a prospective basis, and may also require advance notice to participants. Moreover, a reduction of matching or non-elective/profit sharing contributions, or changes to plans that use a 401(k) safe harbor design, may also be subject to the prospective amendment rules.
- 2025 SECURE 2.0 Provisions. Although most plan sponsors have until December 31, 2026 to adopt SECURE 2.0 amendments, plan sponsors should be prepared to administer those SECURE 2.0 provisions that will become effective in 2025. For example:
- SECURE 2.0 provides for an increased catch up limit for individuals age 60-63 (Sec. 109). Plan sponsors implementing this change should be working with their payroll team and payroll provider to ensure a smooth implementation.
- In addition, the SECURE 2.0 mandatory auto-enrollment rules applicable to plans adopted on or after December 29, 2022 will become effective (Sec. 101).
- Finally, under the SECURE Act, long-term part-time employees who are not collectively bargained must generally be eligible to participate in a 401(k) plan once they have (i) reached age 21, and (ii) worked at least 500 hours in three consecutive 12-month periods beginning in 2021. SECURE 2.0 reduced from three to two the required years of service before long-term part-time employees are eligible to contribute to a plan, and extends this coverage rule to 403(b) plans subject to ERISA. Long-term part-time employees will first be eligible to contribute under the SECURE 2.0 rules on January 1, 2025 (Sec. 125). In the recently issued Notice 2024-73, the IRS announced that the final version of the long-term part-time employee proposed regulations under Code section 401(k) issued in late 2023, will be effective no earlier than plan years beginning on or after January 1, 2026 (see our prior alerts on guidance relating to these rules here and here).
- Rothification of Catch-Up Contributions. The SECURE 2.0 requirement to make catch-up contributions on a Roth basis for participants having in excess of $145,000 of compensation will become effective starting in 2026 (see Notice 2023-62). This will be a complicated change for many plan sponsors, and as such, it is best to start planning for this change now (including coordinating with your payroll team and the recordkeeper). We anticipate that some outstanding issues will be addressed in proposed regulations, which are expected to be issued later this year, so stay tuned for our update.
- Plan Termination Amendments. Plans that are terminating must be amended to reflect all discretionary and required amendments, including SECURE 2.0, SECURE Act, and CARES Act changes by the plan termination date. This is the case even if the plans would have an extended deadline had they not terminated.
Next Steps for Plan Sponsors
In the coming weeks, plan sponsors should take the following steps to ensure their plan documents and plan operations are compliant:
- Review and Amend Plan Documents. Review and amend plan documents to ensure they timely reflect all discretionary plan changes (including design changes that became effective during the year or, in some cases, will become effective next year). For SECURE 2.0, SECURE Act, and CARES Act related changes that have been implemented but will be amended at a later date, keep a running list of the changes and effective dates to ensure you are prepared when ready to formally adopt plan amendments.
- Review Plan Operations. Review plan operations to determine whether conforming plan amendments may be required and to ensure that changes in law are timely implemented. For changes relating to catch-up contributions, coordinate with your payroll team and payroll provider as needed to implement changes.
- Consider EPCRS for Any Plan Amendment or Operational Compliance Issues. If the plan document and operational review indicates potential non-compliance, talk to counsel to evaluate possible corrective measures in accordance with the Employee Plans Compliance Resolution System (“EPCRS”). The expanded EPCRS allows for the self-correction of all “eligible inadvertent failures,” so long as the correction follows the updated EPCRS standards and correction is completed within a reasonable time of discovery of the failure. The IRS has issued Notice 2023-43, which contains interim guidance in advance of the update to Rev. Proc. 2021-30, which is expected sometime before the end of year (See SECURE 2.0 Guidance Process Begins—Self Correction for Inadvertent Failures Is First Up for an overview of this interim guidance).
- Evaluate Potential Future Plan Changes. Consider whether future plan changes may require a prospective amendment and stay in front of changes that may require advance notice to participants and changes to service-provider agreements and related fees.
In addition to the above, plan sponsors should confirm that legally-required participant notices (e.g., 401(k) safe harbor notices, QDIA/automatic enrollment notices, fee disclosures, 402(f) notices) are compliant in form and are being provided by the applicable deadlines using the appropriate delivery method. Plan sponsors should also review participant communications, and remember to provide an updated summary plan description (or summary of material modifications) for any material plan changes within 210 days after the end of the plan year in which the changes are adopted.