Secure 2.0 – What this means for nonprofits with 403(b) retirement plans?

On December 29, 2022, President Biden signed the Secure Act 2.0 (Act) into law, which impacts retirement plans, including 403(b) Plans, and requires certain amendments. The purpose of the Act is to build upon the 2019 Secure Act to further increase participant retirement savings and improve retirement rules. It is important for nonprofits to understand the significant provisions now to prepare for upcoming changes since they are required to be implemented. The following is a summary of some of the more significant changes for 403(b) plans.

• Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs) – The Act allows 403(b) plan sponsors to join MEPs. This will provide an opportunity for organizations such as hospitals, schools, and churches to pool their retirement investments together to obtain more favorable retirement plan terms and spend less on management services. PEPs allow small unrelated nonprofit organizations to join together and participate in a single 403(b) plan.

• Collective Investment Trusts – Previously, 403(b) plans were limited to annuities and mutual funds. Under the new Act, 403(b) plans can also offer collective investment trusts.

• Student Loan Payments – For plan years beginning on or after January 1, 2024, employers are allowed, but not required, to make matching contributions to the accounts of employees who are making qualified student loan repayments in lieu of employee deferral contributions. Employees will be required to certify to Plan management that the student loan payments are being made, and Plan management should maintain this documentation.

• Autoenrollment/auto escalation – For most new plans beginning on or after January 1, 2025, the Act requires employers to automatically enroll employees at a rate between 3% and 10% with an automatic annual rate increase of 1% until it reaches between 10% and 15%. Employees have the option to opt out of the provisions. Best practice is for Plan management to document any opt-outs . Note: there are certain exemptions from this provision, including nonprofits with fewer than 10 employees, church plans, and government plans. All plans in effect are grandfathered.

• Required Minimum Distribution – Increases the required minimum distribution age from 72 to 73 in 2023 and increasing again to 75 by 2033.

• Additional Catch-up Contributions – For plan years beginning on or after January 1, 2025, there are enhanced catch-up contributions for participants between the age of 60 and 63 equal to the greater of $10,000 or 150% of the standard catch-up contribution, subject to other contribution limits.

In addition to the above, there are also several other provisions impacting nonprofit 403(b) Plans as a result of the Secure 2.0 Act (90 sections in total!). The above simply highlights some of the more significant provisions. CLA’s employee benefit plan consulting professionals can help you stay on top of the constantly changing regulatory environment to help your plan meet compliance requirements.

This content was created by CLA’s Shannon Crowley, Principal.