Congressional leaders wrote an open letter to Secretary of the Treasury Janet Yellen and IRS Commissioner Daniel Werfel clarifying what Congress intended with certain provisions of the SECURE 2.0 Act of 2022. In the letter, a bipartisan group of Senate and House members said they intend to correct those technical errors, but they did not spell out a timetable.
Senators Mike Crapo, R-Idaho, and Ron Wyden, D-Oregon, the chairman and ranking member of the Senate Committee on Finance, respectively, and Jason Smith, R-Missouri and Richard Neal, D-Massachusetts, the chairman and ranking member of the House Committee on Ways and Means, respectively, identified Sections 102, 107, 601 and 603 as containing various technical errors or ambiguities.
One of those requiring a correction, Section 603, includes an error pointed out in January by the American Retirement Association that inadvertently would eliminate both future and existing retirement plan catch-up contributions. Section 102 addresses startup tax credits for small employers, Section 107 focuses on the required minimum distribution age and Section 601 clarifies rules regarding SIMPLE IRA and SEP plans.
Startup Tax Credit
Section 102 increases the startup tax credit for small employers from 50% of the costs of starting a retirement plan to 100%, up to a maximum of $5,000. The section also provides a tax credit for matching contributions made for the first five years of a new plan sponsored by an employer with 100 or fewer employees, up to a per-employee maximum of $1,000.
According to the letter, the $5,000 limit on the startup credit could be read as applying to the matching contribution credit as well, or a $1,000-per-employee limit up to $5,000 total. However, Congress did not intend for the $5,000 to apply to the credit for employer contributions. The letter explains: “Congress intended the new credit for employer contributions to be in addition to the startup credit otherwise available to the employer.”
Required Minimum Distribution Age
Section 107 changes the required minimum distribution age. The letter confirms that Congress intended to increase the RMD age to 73 for those who turn 73 after December 31, 2022, and to 75 for those who turn 73 after December 31, 2032. The letter states that the language in this section could be read to apply to those who turn 74 in 2033 instead of 73, but this interpretation would contradict Congressional intent.
SIMPLE IRA and SEP Plans
The letter says that “Section 601 of SECURE 2.0 permits SIMPLE IRA plans and SEP plans to include a Roth IRA.” This section could be read to require SIMPLE IRA and SEP contributions to be included toward the Roth IRA annual contribution limit. Congress intended these limits to be separate items, not mandatory within plans that are designed to encourage employers to offer workplace retirement plans, according to the letter.
Section 603 of SECURE 2.0 contains perhaps the most famous (or infamous) technical error in the legislation. This section requires catch-up contributions made by highly-compensated employees to be made to a Roth account, starting in 2024. This section accidentally removed catch-ups entirely for everyone, Roth or not.
As the letter explained, “Congress did not intend to disallow catch-up contributions … 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 Roth basis.”
The letter did not direct the Department of the Treasury to make regulations in the interim to ensure Congressional intent is carried out, but instead communicated that Congress will correct the errors on their own. The letter also did not broach an extension of compliance dates, such as the one requested by NAGDCA for government plans, especially regarding the requirements of Section 603.