Secure 2.0 Needs Catch-Up Contribution Fix Before It's Too Late, Groups Urge

Lawmakers must issue immediate transition relief under the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act or ”many retirement plan participants will lose the ability to make catch-up contributions” at the end of this year, according to the American Benefits Council and the National Association of Government Defined Contribution Administrators (NAGDCA).

The two lobbying groups told members of the House Ways and Means Committee in a recent letter that legislation is needed to delay the effective date of Section 603 of Secure 2.0, or the IRS can institute a fix.

Ed Slott of Ed Slott & Co., told ThinkAdvisor Monday in an email that the two groups want “the IRS to delay the 2024 effective date of the Secure 2.0 provision that requires certain high-paid employees who wish to make age-50-or-older catch-up contributions to make them on a Roth basis.”

The problem, Slott relayed, “is that plans are not required to offer a Roth option for employee salary deferrals, and many still do not. Secure 2.0 can be read to say that plans that don’t start offering Roth accounts by 1/1/24 can no longer offer catch-up contributions for any age-50-or-older employees.”

The ABC, Slott said, “is pointing out that there may not be enough time for plans without the Roth option to put that option in place by 1/1/24. Therefore, catch-ups would become unavailable for all older employees — a result that nobody wants.”

The trade groups said they spotted the issue while working to implement Secure 2.0.

Specifically, they wrote, “although some plans may be able to comply …. at great cost and burden, a vast number of plans and employers will not be able to comply with the new requirement, effective for 2024, that workers who earned over $145,000 in the preceding year from the current employer must make their catch-up contributions on a Roth basis.”

For many of these plans, they continued, “unless this requirement is delayed very quickly (i.e., this summer), their only means of compliance will be to eliminate all catch-up contributions for 2024.

“If a delay is not announced until, for example, the fourth quarter,” the groups wrote, “it will be too late to prevent this adverse result, since compliance systems need to be designed well before the effective date.”