Both the original SECURE Act, passed in 2019, and SECURE 2.0 enacted at the end of 2022, brought changes to the rules for required minimum distributions (RMDs). Experts caution retirement plan sponsors to pay attention to the whirlwind of shifts and offer guidance for navigating forward.
Since adjustments to the applicable age for RMDs were made with both SECURE and SECURE 2.0, keeping up with the protocols and implementation dates has become confusing. Toward clarity, Alex Mattingly at Graydon Law, points out that it is helpful to start at the beginning and notes: prior to the actions set in motion over the last few years, unless a retirement plan participant was a 5% or more owner, the “required beginning date that participants had to begin taking distributions was the later of April 1st following the year that the participant attained age 70 ½ or retired.”
In 2019, the original SECURE Act “changed the age that the required beginning date is based off of from 70 ½ to 72 for participants who attain age 70 ½ after December 31, 2019.” Now, as Mattingly explains: “SECURE 2.0 increases this to age 73 for individuals who attain age 73 in 2023 and before 2033, and age 75 for individuals who attain age 74 after 2032”; and further notes: “Participants born in 1959 satisfy both rules. However, we anticipate future guidance will clarify this inconsistency.” To help plan sponsors act into the shifts, Mattingly also points out:
Because of the increase in the statutory required beginning date, 2023 will not trigger the start of RMDs for most participants; those that turned 72 in 2022 or in prior years have already started their distributions and must continue, and participants that turn 72 in 2023 will not have attained the new statutory required beginning date. However, plan administrators should pay close attention and look out for RMDs in 2023 that are triggered due to participant retirements. It is also important to keep in mind that these changes increase the statutory required beginning date, but plans can force payments to start earlier. Plans are not required by the SECURE Act or 2.0 to adopt the permitted changes, and many plan sponsors of defined benefit plans have opted to continue requiring distributions at age 70 ½.
More information to help retirement plan sponsors clarify action steps related to SECURE 2.0 is available right here. Since confusion is running high, so is the risk of making a mistake—and in being held personally responsible. 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.” Although the risks associated with fiduciary responsibilities can never be fully eliminated, they can be reduced:
Good To Know
Prior to the flurry of shifts from 2019 to the present, the protocols for RMDs had been mostly the same since 1984. Legal experts at Graydon provide this context about the shifts:
Section 401(a)(9) was enacted in 1984, and for 35 years remained mostly unchanged. Generally, participants were permitted to delay distributions from qualified plans, 403(b) and governmental 457(b) plans until April 1 after the year in which the participant attained age 70 ½ or retired. The long-standing RMD rules were far from simple, but plan administrators had certainty and consistency in applying the law. But over the last three years there has been a whirlwind of legislative and regulatory amendments to the governing laws beginning with the enactment of the SECURE Act in late 2019….SECURE 2.0 increased the RMD triggering age, decreased excise taxes, eliminated distribution requirements for certain Roth accounts, provided a new election for surviving spouses, and made changes to the rules on annuities to promote lifetime income distribution options.
Attorneys are particularly worried about how plan sponsors will juggle the “voluminous changes” and differing effective dates that are bundled into SECURE 2.0—especially given the absence of sufficient implementation guidance. Further clarification from the Department of Labor is eagerly anticipated. Meanwhile, obtaining protection against errors is an important action step for plan sponsors and Colonial makes fiduciary liability insurance affordable. Armed with our coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Conveniently, our Fiduciary With Cyber liability package is now available with a one year commitment. Protect yourself and your business, for a few dollars a day, now:
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