Changes: Required Minimum Distributions



Among the litany of provisions built into the Secure 2.0 Act are changes related to Required Minimum Distributions (RMDs). With the overarching emphasis on helping workers accumulate more savings for older age, Secure 2.0 rings in many shifts and some, such as those related to RMDs, call for immediate attention.


Age Requirements and Catch Up Contributions

The trend toward longer lives means workers need to save more—and deferring the use of retirement savings until we reach our mid 70s is one way to build up the funds available for use as we hit our later years. Accordingly,Secure 2.0 increases the age of individuals mandated to begin Required Minimum Distributions (RMDs), previously set at 72 in the initial SECURE Act, to the age of 73 this year, and 75 beginning in 2033. Retired workers will now be able to accrue greater potential tax-deferred earnings for a longer period of time.”


For retirement plan sponsors, monitoring the proper implementation of Secure 2.0 provisions presents numerous compliance challenges, in part because of the varied timeline for each of the many provisions the new law contains. Some, like the shift to age 73 for RMDs became effective at the start of 2023, while other shifts are to be staged in over the next several years. Similarly, under Secure 2.0, catch-up contribution protocols shifted beginning in 2023, with further adjustments to come:


The new provisions increase “catch up contributions” to both 401(k) and 403(b) plans by qualified participants aged 50 and older. Effective in 2023, this additional “catch up” limit is $7,500. It is important to note that in 2025, plan participants who are ages 60-63 will be allowed to make a “catch up” contribution of $10,000, which is indexed for inflation. Additionally, plan participants affected by SECURE 2.0 are allowed to decide if their “catch up” contributions are to be treated as pre-tax their “catch up” contributions are to be treated as pre-tax contributions or after-tax Roth IRA contributions. If the latter approach is selected, it would require that such contributions be included in the plan participant’s income for the year made — a taxable event for the affected employee.


Who’s Ultimately Responsible?

It goes without saying that there are a great many responsibilities inherent with the role of sponsoring the company retirement plan. Mistakes are always a possibility—and so is the risk of being held personally responsible for errors in the administration of the plan. Indeed, litigation under the high standards of ERISA law has been on the rise. Unfortunately a common—and dangerous—mistake plan sponsors make is assuming that contracting with service providers eliminates the sponsor’s liability. As experts remind us, this is simply not true: “Some plan sponsors think if they outsource administration, oversight, or supervision of employee benefit plans, that they’re also outsourcing the liability. The liability exposure in that instance is the decision that’s made to utilize third party services.”


While the risks associated with fiduciary responsibilities can never be fully eliminated, they can be reduced via fiduciary liability insurance: “Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits.” Indeed, Fiduciary Liability Insurance is the only way plan sponsors can protect themselves, and Colonial’s affordable coverage provides defense costs and penalty limits up to $1,000,000 if you face allegations over an error in plan administration.


Colonial’s Fiduciary Liability comes with Cyber Liability coverage—at no extra cost. That’s important, because for plan sponsors, a cyber breach can spiral quickly into a fiduciary breach. It is especially important to be proactive now, in the face of the sweeping changes Secure 2.0 ushers in. Protect everything you’ve worked for, in minutes, today:


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Rewards  for Small Businesses

Recognizing that sponsoring a retirement plan can be burdensome—especially for small businesses, Secure 2.0 does contain a variety of provisions that reward small business owners for strengthening existing retirement plans, as well as incentives for getting a company sponsored retirement plan off the ground. For example, as Plan Sponsor reports, employers who offer matching contributions can receive tax credits. Other forms of incentives built into Secure 2.0 for small business owners include exemptions from some of the mandates that apply to larger businesses and their retirement plans. You can get up to speed on ways that Secure 2.0 may help your business right here.


Don’t forget, an important personal action step in response to the new laws is securing the business and savings you have worked hard for. There’s no need to shoulder all the fiduciary risks inherent in sponsoring a retirement plan alone. Colonial Surety makes it uniquely affordable and easy for plan sponsors to secure fiduciary liability insurance.


Nobody plans to make a mistake, so protect your business and yourself today:


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Pension plan professional? We’re here to help you with your plan sponsor clients—and we’ve got you too. From  Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liabiity Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing. Insurance for Pension Professionals Right Here.


Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform