The Vita Blog

[UPDATED: JANUARY 26, 2023]

The COVID-19 public health emergency has been extended once again. The latest extension was issued on January 11, 2023, and runs through April 11, 2023.

Group Health Plan Impact

COVID-19 legislation contingent on the public health emergency requires that group health plans must:

• Provide coverage for COVID-19 testing and diagnosis at no cost to plan participants
• Provide coverage for COVID-19 vaccines at no cost (for both in-network and out-of-network providers)

The requirement that group health plans provide these services continues during the extension period.
 

Public Health Emergency vs. National Emergency

The COVID-19 Public Health Emergency designation was made by the Department of Health and Human Services and mandates health plan coverage as outlined above. 

The COVID-19 National Emergency is a separate designation that was made by Executive Order. It impacts a number of employee benefit tolling periods for plan participants, COBRA-qualified beneficiaries, and employers. The national emergency is currently still in effect.
 

No Employer Action Required

[ORIGINAL POST: MARCH 15, 2022]

President Biden again formally extended the COVID-19 National Emergency (which was previously set to expire on March 1, 2022). Each National Emergency declaration generally lasts for one year unless the President announces an earlier termination or an extension (for up to another year). President Trump first declared the National Emergency on March 1, 2020. On Feb. 24, 2021, President Biden extended the National Emergency. Most recently, it was unclear whether President Biden would extend it again because, although many stakeholders requested another extension, the Biden administration is also facing some political pressure to move the country onto an "off-ramp" from the COVID-19 pandemic. Nonetheless, a formal extension was made. However, it is possible that President Biden could take action to end the National Emergency in the coming months (assuming COVID-19 cases, hospitalizations, and deaths continue to decline).
 

Employee Benefits Deadlines Will Be Further Tolled

As a result, the “tolling” of health, welfare, and retirement plan deadlines will also remain in effect. This means plan sponsors and administrators should continue to apply the deadline extensions to affected individuals on a participant-by-participant basis for the foreseeable future. This further extension means that the deadlines summarized below must continue to be tolled for one year or for 60 days from the end of the National Emergency (if President Biden declares an earlier end to the National Emergency).
 

The First Year of the National Emergency

Shortly after the COVID-19 pandemic began, joint guidance from the Department of Labor and the Department of the Treasury suspended, or “tolled,” certain deadlines for benefit plans and participants for the period beginning on March 1, 2020 and ending 60 days after the announced end of the National Emergency. This extension period is referred to as the “Outbreak Period.” The following deadlines were extended by the length of the Outbreak Period.

For Participants:

• HIPAA Special Enrollment. The 30-day deadline (or 60-day deadline, in some instances) to request enrollment in a group health plan following the loss of other group health plan coverage, the acquisition of a new dependent through marriage, birth, adoption or placement for adoption or the eligibility for premium assistance through state premium assistance subsidy, Medicaid, or CHIP.
• COBRA Notifications (by Employee to Employer). The 60-day deadline by which individuals must notify the plan of certain COBRA-qualifying events (such as a divorce or a child losing eligibility as a dependent under the plan), or a Social Security Administration determination of disability.
• COBRA Elections. The 60-day deadline for electing COBRA coverage.
• COBRA Premium Payments. The 45-day (initial) and 30-day (subsequent monthly) COBRA premium payment deadlines.
• Benefit Claims and Appeals. The plan deadlines by which participants may file a claim for benefits (under the terms of the plan) and the deadline for appealing an adverse benefit determination. This includes extensions of claims filing deadlines for Health FSAs.
• External Review. The 4-month deadline by which a claimant must request an external review of a final determination on appeal.

For Employers/Plan Sponsors:

• COBRA Notifications (by Employer to QB). The 14-day deadline to provide a COBRA election notice to qualified beneficiaries or the 44-day (14+30 days) deadline for employers who are plan administrators.

 

The Second Year of the National Emergency

Because the COVID-19 pandemic had not yet ended at the time the regulatory guidance was set to expire, the DOL issued additional guidance in February 2021, providing that the deadlines would continue to be tolled, or remain disregarded, through the earlier of:

• One year from the date the individual was first entitled to the extension relief (i.e., a date on or after March 1, 2020).
• 60 days after the end of the National Emergency (i.e., the end of the Outbreak Period).

Importantly, the second year ushered in the position that the tolling period applies on a person-by-person basis. It can be challenging to track these deadlines when the tolling period applies, so plan administrators need to take care that they are calculating the deadlines correctly.
 

The Third Year of the National Emergency

While this latest extension of the National Emergency does not change the previous guidance, it does further extend the timeline of the tolling period; participants will continue to have more time to act on these deadlines than they normally would under the applicable plan terms. Note that the individualized tolling periods continue into the third year. Also, because the National Emergency’s end remains open at this time, exactly how long participants have under these deadlines remains a moving target until the National Emergency ends.
 

Different from the Public Health Emergency

Importantly, this National Emergency declaration is different from the Public Health Emergency declaration made by the Secretary of HHS, which is tied to the COVID-19 testing requirements in the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The Public Health Emergency is set to expire on April 16, 2022. However, the Secretary may extend it for subsequent 90-day periods for as long as the public health emergency continues to exist or may terminate the declaration whenever it is determined that the public health emergency has ceased to exist.

Health and Welfare Benefit Plans

Category	Updated Penalty
Failure to file Form 5500	$2,586 per day that the filing is late
Summary of Benefit Coverage (SBC)	$1,362 per failure (which means per participant not receiving an SBC)
Failure to comply with GINA requirements	$137 per day of noncompliance
Failure to provide notice of CHIP availability	$137 per day per participant

 

401(k) Plan Penalties

Category	Updated Penalty
Failure to provide notice for auto-enrollment plans	$2,046 per day
Failure to provide blackout notices	$164 per day
Failure to comply with recordkeeping and reporting requirements	$36 per day per employee

 

General Penalties

Category	Updated Penalty
Cap on penalties for unintentional failures	$2,046 per day
Minimum penalty for non-de-minimus failure not corrected before notice from DOL	$3,192
Failure to provide plan documents to DOL within 30 days of request	$184 per day late (capped at $1,846 per request)

 

Penalty Reality

The reality is that the DOL retains the discretion to impose lower penalties, and, in certain circumstances, they do. It is, therefore, true that not all violations will result in maximum penalties being applied. That said, out-of-compliance employers should not bank on forgiveness of penalties without a compelling reason for their non-compliance. While a certain measure of leniency has been seen in the past, we think that the DOL’s enforcement efforts will continue to tighten in the future. 

Shortly after the bipartisan SECURE Act was signed into law in December 2019, legislators began working on follow-up bills to further enhance participation in retirement plans. The result of these efforts is SECURE 2.0, which contains 90+ provisions aimed at further encouraging retirement savings. As a reminder, SECURE stands for Setting Every Community Up for Retirement Enhancement, essentially a clunky acronym for legislative efforts to improve retirement savings opportunities.
 

A Sectional Approach

In an effort to make our Ultimate Guide to Secure 2.0 as useful and effective as possible, we have divided the article into three distinct sections. The various provisions of the new law are divided into three categories which are loosely aligned with the relative frequency with which an employer would address them.

The idea is that you can read the sections that are relevant to you, depending on how deep you want to go into the material.

• The Everyone Section: Provisions that essentially all benefits professionals will want to understand.

• The Retirement Professional Section: Provisions reflecting the more detailed elements of the new law that people involved in retirement plans will need to know, but general benefits people can get away with not knowing.

• The Nerd Section: Provisions that are more nuanced (and sometimes obscure). For all you retirement nerds out there . . . this section is for you!

This summary focuses on the provisions that impact employer-sponsored retirement plans only. Provisions that do not directly impact 401(k) plans have been omitted.
 

Effective Dates

Most of the provisions of the law do not become effective until 2024 or later, so employers and retirement plan providers will have some time to work through implementation issues. Because the effective dates differ, this guide identifies the specific effective date for each provision.
 

Legislative References

For the Super Nerds, a summary by section of the actual legislation can be found here: SECURE 2.0. Code sections for the actual legislation are also included at the end of each provision for reference.

Webinar

In addition to this comprehensive resource, Vita will be hosting a webinar on SECURE Act 2.0 on January 18 at 12:00 p.m. Pacific.








 

The Everyone Section

Mandatory Auto-Enrollment for New Plans

Employers establishing new plans are required to auto-enroll all eligible new hires into a 401(k) plan at a pre-tax rate of at least 3% of pay with an auto-escalation increase of 1% per year until the salary reduction reaches at least 10% (but no more than 15%). Employees have the option to opt-out or select a different contribution level, but the no-action default is required to be 3% pre-tax.

Existing plans are grandfathered. We expect that employers will amend existing plans to conform to the auto-enrollment default over time.

Certain employers are exempt from mandatory enrollment for new plans. These include small businesses with 10 or fewer employees, employers that have been in business for less than three years, churches, and governments.

This provision is effective for new plans starting after December 31, 2024. (Section 101)
 

Matching Contributions Can Now be Roth

Current law does not permit employer matching or nonelective contributions (NECs) to be made on a Roth basis (they must be made on a pre-tax basis). SECURE 2.0 allows employees to elect to have employer-matching contributions and/or NECs made on a Roth basis. Matching and NECs designated as Roth contributions are not excludable from the employee’s income and must be 100% vested when made.

This provision is effective for contributions made after enactment (2023 and beyond). However, it is expected that actual implementation will be delayed as it will take recordkeepers some time to develop the complex infrastructure required to support this flexibility. (Section 604)
 

Catch-up Contributions Enhanced

Current law allows employees over age 50 to make catch-up contributions to increase the growth of their plans as they near retirement. The current catch-up contribution limit is $6,500 in 2022 ($7,500 in 2023). SECURE 2.0 increases the catch-up contribution amount as follows:

• Age 50-59: No change ($6,500 in 2022, $7,500 in 2023)

• Age 60-63: $10,000 or 150% of the regular catch-up amount for 2024, indexed for inflation

The increased limit applies to individuals who attain age 60, 61, 62, or 63 in that tax year.

This provision is effective for taxable years beginning after December 31, 2024. (Section 109)
 

Required Roth Catchup Contributions for High-Income Earners

SECURE 2.0 creates a requirement that catchup contributions made by employees whose wages exceed $145,000 (indexed for inflation) must be made on a Roth basis (after tax). This provision is mandatory for any plan that makes catch-up contributions available. Guidance will be necessary to clarify how this provision will apply to plans that allow catch-up contributions but do not currently include a Roth deferral option. On its face, it would appear that HCEs would be unable to make catch-up contributions if a Roth option was not added to the plan. 

This is one of the primary revenue raisers of the SECURE 2.0 legislation. The funds garnered from converting these contributions to after-tax help to balance the other provisions of the bill, which generate additional government spending.

This provision is effective for tax years beginning after December 31, 2023. (Section 603)
 

Lost and Found Database

One of the challenges employers face is not having current contact information for former retirement plan participants after they leave the company. Similarly, individuals often can’t locate or don’t know where to look to find old accounts left in former employer plans.

The new law directs the DOL to create a nationwide, online, searchable “Lost and Found” database that maintains information on benefits owed to missing, lost, or non-responsive participants and beneficiaries in retirement plans. The goal of this provision is to create a tool to assist plan participants and beneficiaries in locating monies that may have been left in accounts under a former employer plan. Note that this provision comes with obvious reporting requirements for employers where they will need to report such information to the DOL so that it can be included in the database. The specifics of these reporting requirements have yet to be spelled out.

This provision requires the creation of the Lost and Found database no later than two years after the date of enactment of SECURE 2.0. (Section 303)
 

Paper Notification Requirements

SECURE 2.0 brings modifications to the retirement plan benefit statements requirement. The new rules generally require that retirement plans provide:

• Defined Contribution Plans: at least one paper statement each calendar year

• Defined Benefit Plans: at least one paper statement every three years

The other three quarterly statements required under ERISA are not subject to this rule (meaning they can be provided electronically).

Importantly, exceptions are allowed for plans that follow the DOL’s electronic delivery rules or for participants or beneficiaries who have opted into e-delivery according to the 2002 safe harbor.

This provision is effective for plan years beginning after December 31, 2025. (Section 338)
 

Emergency Savings Accounts (ESAs)

This provision introduces a new element to retirement plan accounts. It permits plan sponsors to amend their plans to allow for emergency savings accounts (ESAs). These accounts have been dubbed “side-car” accounts as they sit next to a regular 401(k) account under a retirement plan. Employee ESA contributions must be made on a Roth (post-tax) basis, and they must be eligible for matching contributions at the same matching rate established under the plan for retirement plan elective deferrals. Matching contributions are not made to the emergency savings account. Rather, they are made to the participant’s 401(k) account. Employers may auto-enroll participants into ESAs at a rate of up to 3% of compensation. Contributions are capped at $2,500 (indexed for inflation after 2024) or a lower amount determined by the plan sponsor. Only non-highly compensated employees are eligible for ESAs.

Employees can withdraw from the ESA on a penalty-free basis at any time. In addition, they must be able to take up to four withdrawals on a no-fee basis at a frequency of at least once per month. Minimum contribution or balance requirements are prohibited. At separation, employees may take their ESAs as cash or roll them onto their Roth 401(k) or IRA (if they have one). Participants must be allowed to invest ESA funds in cash, interest-bearing deposit accounts, and principal preservation accounts. There is also a fiduciary safe harbor for automatic enrollment. Lastly, this provision includes the preemption of state anti-garnishment laws.

This provision is effective for distributions made after December 31, 2023. However, the infrastructure required to implement this provision will be incredibly complex for recordkeepers to develop. Therefore, 2024 is probably optimistic. (Section 127)
 

Emergency Withdrawals

SECURE 2.0 changes the law to allow one withdrawal of up to $1,000 per year for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Such withdrawals are not subject to the federal 10% penalty for early withdrawal (for individuals under age 59½). The withdrawal may be repaid within three years. Further withdrawals are limited within the three-year repayment period if the first withdrawal has not been repaid.

This provision is effective for distributions made after December 31, 2023. (Section 115)
 

Increase in Mandatory Cash-Out Threshold

Under current law, employers may immediately distribute a former employee’s retirement plan account and transfer it into an IRA if their plan balance does not exceed $5,000. This can be done without the participant’s consent or involvement. The SECURE 2.0 law increases the involuntary cash-out limit to $7,000.

The law also paves the way for retirement plans and recordkeepers to offer automatic portability provisions for amounts transferred to a default IRA. These automatic portability provisions are designed to enable default IRA balances to be automatically transferred into the retirement plan of an employee's new employer without the employee needing to take any action.

This provision is effective for distributions after December 31, 2023. (Section 304)
 

Employee Self-Certification for Hardship Distribution

Current regulations provide that hardship distributions may be made due to an immediate and heavy financial need or an unforeseeable emergency. These needs must be individually evaluated using facts and circumstances, but certain events can be deemed hardship events under a safe harbor. In general, current hardship rules require that employees submit records documenting a safe harbor event that constitutes a hardship, specifically that the employee has insufficient cash or liquid assets reasonably available to satisfy the hardship need.

SECURE 2.0 allows a plan administrator to rely on an employee’s self-certification that an event qualifies as a hardship for the purposes of taking a hardship withdrawal from a 401(k) plan. The administrator can also rely on the employee’s self-certification that the distribution is not in excess of the amount required to satisfy the financial need and that the employee has no alternative means reasonably available to satisfy the financial need. This is a welcome relief from an otherwise burdensome administrative process for employers and a natural extension of the self-certification procedures that have been authorized as a result of COVID-19.

This provision is effective for plan years beginning after the date of enactment. (Section 312)

 

The Retirement Professional Section

De Minimus Financial Incentives Okay

Under current law, employees are prohibited from receiving incentives for participating in a retirement plan (other than employer matching contributions). The new law allows participants to receive de minimis financial incentives (not paid for with plan assets) for contributing to a 401(k) plan. These incentives could be items such as gift cards for small amounts. No specific guidance was provided regarding what constitutes a “de minimis financial incentive.” Presumably, the IRS will guide employers on this matter.

This provision is effective for plan years beginning after the date of enactment. (Section 113)
 

Top-Heavy Testing

Generally, for defined contribution plans, the top-heavy minimum contribution is 3% of the participant’s compensation. A plan is top-heavy if the aggregate account balance for key employees exceeds 60% of the aggregate account balance for non-key employees. If a plan is top-heavy, the 3% minimum contribution must be provided for non-key employees, and, in some cases, faster vesting is required. This can be very costly for small employers who frequently struggle with having top-heavy plans.

Other 401(k) plan discrimination tests allow employers to test otherwise excludable employees (under age 21 and have less than one year of service) separately. This allows employers to permit excludable employees to defer earlier and to know that doing so won’t compromise passing discrimination tests. This separate testing has never been allowed for the top-heavy test.

SECURE 2.0 allows a top-heavy plan that covers excludable employees to perform top-heavy testing for excludable and non-excludable employees separately. This change removes the financial incentive to exclude employees from a 401(k) plan and allows workers who might otherwise be excluded access to save for retirement.

This provision is effective for plan years beginning after December 31, 2023. (Section 310)
 

Part-Time Worker Eligibility Enhancement

The law reduces the maximum years of service (from three years to two years) required for a part-time employee to be eligible for a 401(k) plan. The 500 hours per year threshold remains. Pre-2021 service is disregarded for employer contribution vesting purposes, and pre-2023 service is disregarded for eligibility and vesting purposes under this new provision.

This provision is generally effective for plan years beginning after December 31, 2024. The clarification that pre-2021 service may be disregarded for vesting purposes is effective as if included in the 2019 SECURE Act, so effective for plan years beginning after December 31, 2020. (Section 125)
 

Student Loan Matching

The SECURE 2.0 legislation authorizes employers to contribute to an employee’s retirement plan based on an employee’s student loan payments. This provision is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt and thus are missing out on available matching contributions under a retirement plan.

Employer student loan match contributions would be treated as a regular matching contribution for discrimination testing purposes, and employers also are permitted to test employees receiving student loan matching separately. Employees can also designate student loan matching contributions to be made as Roth contributions.

The arrangement of matching student loan payments is not new but has only been available to those employers who have sought and received an IRS ruling for this type of contribution. This provision expands the applicability to all employers and eliminates questions about both the legality of the practice and how it impacts discrimination testing.

This provision is effective for plan years beginning after December 31, 2023. (Section 110)
 

Unenrolled Participant Notifications Streamlined

Under current rules, employees who choose not to participate in an employer-sponsored plan (unenrolled participants) are required to receive numerous communications from the plan sponsor that are not applicable (since they didn’t enroll). SECURE 2.0 streamlines the requirements for plan sponsor notices to unenrolled participants to consist solely of an annual notice of eligibility to participate during the annual enrollment period (and provide any requested documentation to which they are otherwise entitled).

This provision is effective for plan years beginning after December 31, 2022. (Section 320)
 

Safe Harbor for Correcting Deferral Errors

The IRS has a process to allow plans to correct errors, including errors relating to missed deferrals under automatic enrollment or automatic escalation features. Currently, there is a safe harbor for correcting automatic enrollment failures, but it is set to expire on December 31, 2023.

SECURE 2.0 creates a safe harbor that assures a plan will not fail to be a qualified plan merely because of a corrected error. Following are the required elements of a correction under the new safe harbor:

• Must be a reasonable administrative error made in implementing automatic enrollment, automatic escalation features, or by failing to offer an affirmative election due to the employee’s improper exclusion from the plan

• Must be corrected within 9 ½ months of the end of the plan year in which the error occurred (or the date on which the employee notifies the plan sponsor of the error, if earlier)

• Must be resolved favorably toward the participant and without discrimination toward similarly situated participants

• Notice must be provided to the affected participant within 45 days of the date correct deferrals begin. 

This new safe harbor does not require a corrective contribution for missed deferrals. However, the plan sponsor must contribute any missed matching contributions, plus earnings, that would have been made if the error had not occurred.

This provision is effective for any errors occurring after December 31, 2023. (Section 350)
 

Plan Amendment Timing

Current law generally requires plan amendments to reflect legal changes to be made by the tax filing deadline for the employer’s taxable year in which the change in law occurs (including extensions). The IRS Code and ERISA provide that, generally, accrued benefits cannot be reduced by a plan amendment. This is designed to protect plan participants.

SECURE 2.0 allows plan amendments made pursuant to this law to be made by the end of the 2025 plan year as long as the plan operates in accordance with such amendments as of the effective date of a bill requirement or amendment. This provision also conforms the plan amendment dates under the SECURE Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 to the 2025 date.

This provision is effective upon enactment. (Section 501)

 

The Nerd Section

RMD Age Raised

Currently, taxpayers are required to start taking Required Minimum Distributions (RMD) from their retirement accounts at age 72. The intention behind this policy is to ensure that individuals spend their retirement savings during their lifetime and do not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.

SECURE 2.0 increased the age for RMDs as follows:

• Effective January 1, 2023, the RMD age is raised to 73

• Effective January 1, 2033, the RMD age is raised to 75.

Practically, this means that taxpayers who turn 72 in 2022 must take an RMD by April 1, 2023. Taxpayers who turn 72 in 2023 do not need to take an RMD until the following year, the year in which age 73 is reached.

This provision is effective for distributions made after December 31, 2022, for individuals who attain age 72 after that date. (Section 107)
 

RMD Penalty Lowered

Individuals who do not take an RMD are subject to an excise tax penalty. Under prior law, the penalty was a 50% excise tax. SECURE 2.0 reduces that penalty to 25%. In addition, the penalty can be further reduced to 10% if the individual corrects the shortfall within a two-year correction window. 

This provision is effective for taxable years beginning after the date of enactment. (Section 302)
 

Updated Performance Benchmarks for Asset Allocation Funds

Existing participant disclosure regulations require that each investment alternative’s historical performance be compared to an appropriate broad-based securities market index. However, the rule does not adequately address increasingly popular investments like target date funds that include a mix of asset classes.

SECURE 2.0 requires the DOL to modify existing regulations so that an investment that uses a mix of asset classes can be benchmarked against a blend of broad-based securities market indices, provided:

• The index blend reasonably matches the fund’s asset allocation over time

• The index blend is reset at least once a year

• The underlying indices are appropriate for the investment’s component asset classes and otherwise meet the rule’s conditions for index benchmarks.

This change in the disclosure rule allows better comparisons and aids participant decision-making. These changes are permissive for plan administrators and are not mandatory. The DOL is directed to update the regulations no later than two years after the enactment of this Act.

This provision is effective upon enactment. (Section 318)
 

529 Plan Rollovers to IRA

Section 529 qualified tuition programs permit contributions to tax-advantaged accounts that can be invested and used to pay for the qualified education expenses of a designated beneficiary. There have long been concerns about leftover funds being “trapped” in 529 accounts, with the only option being to take a non-qualified withdrawal and pay the penalty.
 
SECURE 2.0 provides new IRA rollover flexibility for assets maintained in a 529 account. To qualify, assets must have been maintained in a 529 account for a designated beneficiary for 15 years. After that time, unspent assets may be rolled over on a tax-free basis to a Roth IRA in the name of the beneficiary. Permitted rollovers are limited to:

• The aggregate amount of contributions to the account (and earnings thereon) before the 5-year period ending on the date of the rollover.

• A lifetime limit of $35,000.

The rollover is treated as a contribution towards the annual Roth IRA contribution limit. In addition, the Roth IRA owner must have includible compensation at least equal to the amount of the rollover.

This provision is effective for distributions after December 31, 2023. (Section 126)
 

Distributions for Long-Term Care Premiums

The new law permits retirement plans to make distributions for certain long-term care insurance contracts. The maximum amount per year that can be distributed is the lowest of:

• The amount paid by or assessed to the employee during the year for long-term care insurance

• 10% of the employee’s vested accrued benefit in the plan

• $2,500 (indexed for inflation beginning in 2025).

Distributions from plans would be exempt from the federal 10% penalty on early distributions if used to pay premiums for qualified long-term care insurance.

This provision is effective beginning with distributions three years after the date of enactment. (Section 334)
 

Penalty-Free Withdrawal in Case of Domestic Abuse

The new law permits plans to allow penalty-free withdrawals in the case of domestic abuse. Participants may self-certify that they have experienced domestic abuse within the past year to be eligible to withdraw a portion of their retirement plan account without an early withdrawal penalty. The maximum withdrawal is limited to the lesser of:

• $10,000 (indexed)

• 50% of the value of the employee’s vested account under the plan.

Participants have the opportunity to repay the withdrawn amount over a 3-year period. To the extent repayment is made, the participant will receive a refund of taxes paid on the distributed funds.

This provision is effective for distributions made after December 31, 2023. (Section 314)
 

Savers Match for Lower-Income Individuals

In a change to the existing Saver’s Credit program, the new Saver’s Match program provides that lower-income retirement savers will be eligible to receive a government-funded matching contribution to their individual retirement account (IRA) or employer-sponsored retirement plan. Contributions are matched at 50% up to $2,000 per individual. Matching contributions are phased out as income increases, between $41,000 and $71,000 (for joint filers).

This provision is effective for tax years beginning after 2026. (Section 103)
 

Administration Credit for New Plans

Existing law provides for an employer credit for administrative costs incurred when setting up a new 401(k) plan. The credit is currently available for small employers with fewer than 100 employees and consists of a three-year start-up credit of up to 50% of administrative costs, with a maximum annual cap of $5,000.

SECURE 2.0 increases the credit to 100% of qualified start-up costs for employers. It also provides for an additional tax credit for five years of a set percentage of the amount contributed by the employer for employees up to a per-employee cap of $1,000. The tax credit percentage is 100% for the year the plan is established and year two, 75% for year three, 50% for year four, 25% for year five, and 0% thereafter. Contributions to employees with compensation in excess of $100,000 (indexed) are excluded.

The credit applies to employers with up to 50 employees (this reflects a phase-out for employers with between 51 and 100 employees). The practical effect of this provision is that small employers may be able to implement a retirement plan on a near-fully-subsidized basis.

This provision is effective for tax years beginning after December 31, 2022. (Section 102)
 

Rollover Simplification Forthcoming

The new law requires the Treasury to simplify and standardize the rollover process and issue sample forms to facilitate and expedite processing no later than January 1, 2025. The focus of the simplification effort is rollovers of eligible distributions from employer-sponsored retirement plans to another such plan or IRA.

This provision is effective upon enactment. (Section 324)
 

Repayment of Birth/Adoption Distributions

Current law does not limit the period during which a qualified birth or adoption distribution (QBAD) may be repaid. The distributions may be repaid at any time and are treated as rollovers. This created a problem for anyone who repays such a distribution after three years because the ability to amend a tax return and secure tax refunds is limited after that period.

SECURE 2.0 requires qualified birth or adoption distributions to be recontributed within three years of the distribution to qualify as a rollover contribution. This aligns with a similar rule for disaster relief repayments.

This provision is effective for distributions made after the date of the enactment and retroactively to the 3-year period beginning on the day after the distribution was received. (Section 311)
 

Disaster Distribution Rules Made Permanent

In recent years, Congress has eased plan distribution and loan rules in the case of certain federal disasters. SECURE 2.0 establishes permanent rules for governing plan distributions and loans in cases of qualified federally declared disasters. This means Congress no longer needs to pass special relief for each disaster. The following are key elements:

• Up to $22,000 may be distributed to a participant per disaster

• The distribution amount is exempt from the federal 10% early withdrawal fee (any state penalty would still apply)

• Inclusion in gross income may be spread over 3-year period

• Amounts may be recontributed to a plan or account during the 3-year period beginning on the day after the date of the distribution

• Allows certain home purchase distributions to be recontributed to a plan or account if those funds were to be used to purchase a home in a disaster area and were not so used because of the disaster

• Increases the maximum loan amount for qualified individuals experiencing a qualified disaster to $100,000 (or 100% of the participant’s account balance)

• Allows for a one-year extension of any loan repayment period.

This provision is effective for disasters occurring on or after January 26, 2021. (Section 331)
 

Roth Plan RMD Distributions

Under current law, RMDs are not required to begin before the death of the owner of the Roth IRA. By contrast, pre-death RMDs are required in the case of Roth monies in an employer 401(k) plan. SECURE 2.0 extends the pre-death RMD exemption to Roth amounts in 401(k) plans.

This provision is generally effective for taxable years beginning after December 31, 2023. However, it does not apply to distributions required before January 1, 2024. (Section 325)
 

No Penalty Terminal Illness Distributions

Current law imposes a 10% tax penalty on early distributions from tax-preferred retirement accounts unless certain exceptions apply, but terminal illness is not one of them. SECURE 2.0 creates an exception to the 10% early withdrawal penalty for distributions to individuals whose physician certifies that they have a terminal illness. Terminal illness is defined as an illness or condition that is reasonably expected to result in death in 84 months or less. Note that any state withdrawal penalties would still apply.

This provision is effective upon enactment. (Section 326)
 

Starter Plans

The law creates two new “starter plan” designs for employers that do not currently sponsor a retirement plan:

• Starter 401(k) Plan: Deferral-only arrangement

• Safe Harbor 403(b) Plan: Safe harbor plan

These new “starter plans” are structured as simple, deferral-only plans. The plans would generally require that all employees be enrolled in the plan with a deferral rate of 3% to 15% of compensation. The limit on annual deferrals is $6,000 (in 2022), with an additional $1,000 catch-up beginning at age 50 (both limits indexed for inflation). No employer contributions would be required.

This provision is effective for plan years beginning after December 31, 2023. (Section 121)



Vita Planning Group is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

The last of the 2023 employee benefits annual limits and numbers have now been finalized by the IRS. Here is a recap of all the finalized 2023 numbers:

Under the ACA, people who do not have access to “affordable” health insurance through their employer may qualify for a premium tax credit to purchase coverage through the ACA’s health insurance marketplaces (CoveredCA in California). Current regulations define employer-based health insurance as “affordable” based solely on the lowest cost plan’s employee contribution, not on the full contribution to insure their family members. This has the consequence of deeming family members ineligible for premium tax credits, even though the cost of employer-sponsored coverage for family members could be well above the affordability threshold. This problem has been dubbed the “family glitch.”
 

Final Regulations Released

The Treasury Department and the IRS released proposed regulations in April to eliminate the family glitch. Those regulations have just been finalized. The new regulations allow family members of workers who are offered affordable self-only coverage, but unaffordable family coverage would no longer be disqualified from receiving premium tax credits to purchase ACA coverage.
 

Are we surprised by this?

No. This change is not a surprise. The regulations flow from an executive order on the ACA and Medicaid issued by President Biden in January 2021, which hinted at the possibility of fixing the family glitch. Critics have long argued that the family glitch interpretation is inconsistent with the text, structure, and goals of the ACA and unfairly penalizes family members of lower-income workers. In addition, it has long been the intention of the current administration to beef up the ACA where possible, with the goal of providing greater access to healthcare and to lower individuals’ costs were possible.
 

Fixing the Family Glitch

The proposed rule would reinterpret how affordability of employer health care coverage is determined for purposes of premium tax credits with respect to family members who are offered employer-sponsored coverage.

The Old Way: Employer coverage is defined as unaffordable for a single employee if the employee contribution for self-only coverage is more than the affordability threshold (9.61% in 2022 of household income, 9.12% in 2023). An oddity emerges in that calculation with respect to family coverage because affordability for family members is also determined with respect to the contribution for self-only coverage (not the contribution for family coverage).

The New Way: The affordability test for single employees will remain unchanged. Employees would still be barred from accessing marketplace subsidies if their employer offered affordable employee-only coverage. However, the calculation will change for employees with families. Under the new rules, affordability would be calculated separately for family coverage and would be deemed unaffordable for family members if the required family contribution is greater than the affordability threshold (9.61% of household income in 2022, 9.12% in 2023). When this affordability threshold is exceeded, family members would no longer be barred from accessing premium tax credits and thus could seek subsidized coverage through the Exchange.
 

Key Employer Takeaways

There is a lot in here . . . What do I really need to know as an employer? The good news is that there is little that is newly actionable for employers in these proposed regulations. It impacts access to premium tax credits for dependents who may have been previously disqualified. The following are the key takeaways for employers:

No Impact to Employer Shared Responsibility Penalties: The proposed rule will not affect Shared Responsibility liability under the employer mandate. Why? The employer mandate requires certain ALEs to offer coverage to employees and dependents. However, penalties for violating the mandate are triggered only when an employee receives premium tax credits through the marketplace. Therefore, extending marketplace tax credits to family members of employees (who are not offered affordable employer-sponsored family coverage) would not impact the eligibility of employees and thus would not trigger a shared responsibility payment.

No Impact to 1095 Reporting: These regulations have no impact on 1095 reporting. It is important to remember that affordability and minimum value for premium tax credit eligibility is different than for purposes of potential employer shared responsibility penalties. No doubt the new proposed rule will create some confusion given the similar terminology. However, the regulations do not change the affordability calculation or minimum value determination as it relates to annual ACA reporting or assessment of penalties.

Conforming Cafeteria Plan Change: A change was also made to allow an employee to make a mid-year election change to their health insurance coverage (not FSA coverage) when a dependent becomes newly eligible for a premium subsidy under the Exchange.

Marketplace Notice: Employers can expect the standard Marketplace Notice to be revised to reflect these changes and should plan on updating the version that is distributed to employees once a new version has been released.
 

Two Nitty Gritty Clarifications

The regulations also addressed two additional items as follows:
 

1. Minimum Value Rule: The minimum value rule is extended to dependent coverage. This means that employers must provide an offer of minimum value coverage to dependent children as well as to employees (to avoid Shared Responsibility penalties). The definition of minimum value coverage retains the requirement that plans provide 60% of the total allowed cost of benefits and newly adds the clarification that plan benefits must include substantial coverage of inpatient hospital and physician services. To the extent that minimum value coverage is not being offered to dependent children, employers will need to address this issue.
    
2. Marketplace Responsibilities: The marketplace would be required to assess:
   • Whether an employee has an offer of affordable employee-only coverage,
   • Whether family members have an offer of affordable family coverage, and
   • Whether any of those family members have an offer of affordable coverage from more than one employer (either as an employee or a dependent).

 

What is the effective date?

The new rule becomes effective for tax years beginning in 2023. This means that dependents who are offered unaffordable employer-sponsored family coverage would be eligible for premium tax credits beginning in 2023 (with enrollment to begin in November 2022).

Basics of the Program

• Family Leave
  • To care for and bond with a child following the child’s birth, adoption, or foster care placement (must be taken within 12 months of birth/placement)
  • To care for a family member with a serious health condition
• Medical Leave
  • To recover from a serious health condition or care for a family member with a serious health condition
• Safe Leave
  • To take leave if the employee or an employee’s family member has experienced domestic violence, sexual assault, harassment, or stalking.

• Must be employed in Oregon.
• Must have earned at least $1,000 in wages in the four out of five quarters before starting leave under Paid Leave Oregon.
• Cannot simultaneously receive workers’ compensation and/or unemployment insurance benefits.
• Independent contractors, volunteers, and work training/work-study program participants are not considered employees and, thus, are excluded from the program.

• Child (of any age)
• Spouse or Domestic Partner
• Sibling (including step-siblings and in-laws)
• Parents (includes step-parents and in-laws)
• Grandchild
• Grandparent
• Any individual related by blood or affinity whose close association with a covered individual is the equivalent of a family relationship

 

Program Benefits

• Employees may take up to 12 weeks of paid leave per year.
• In certain situations, an employee may take an additional two weeks (for a total of 14 weeks)
• Leave may be taken continuously or in partial increments (one week, one day, etc.).
• Benefit amounts are based on a formula that considers the income of the individual.
• Leaves are job-protected for employees who have been employed with an employer for at least 90 days.

• If AWW <= 65% of SAWW, benefit = 100% of AWW
• If AWW > 65% of SAWW, benefit = 65% of the SAWW + 50% of the AWW above that amount
• Benefit Cap = 120% of SAWW (Initial benefit cap: $1,469.78 per week for 2023)

Program Funding and Contribution Details

• Employees contribute 60%
• Employers contribute 40%

• Register with Frances Online
• Coordinate with the payroll service provider to ensure that correctly calculated employee contributions are withheld from paychecks starting January 1, 2023.

 

Employer Obligations

• Benefits of the program
• Claims process
• Notice requirements for leave
• Rights to job protection and benefits continuation
• Protection against retaliation
• Right to appeal a decision
• Confidentiality of information received related to a leave

• Right to restoration to the same position (or equivalent if the position no longer exists)
• No employee benefits loss, including seniority or pension rights, accrued before the date on which the leave commenced.

Important Dates to Know

• January 1, 2023: Employee contributions start
• January 1, 2023: Employer contributions start
• September 3, 2023: Employees may begin applying for Paid Leave Oregon benefits
   

Claims Administration

Private Plan Arrangements

• Offer the same or more benefits than Paid Leave Oregon offers
• Employee contributions less than or equal to contributions to the Paid Leave Oregon program
• Be approved by the Oregon Employment Department.

Small Employer Exemption and Grants

• If an employee takes family and medical leave, a small employer who pays their share of contributions may apply for one grant per employee, up to a maximum of 10 grants per year.
• Employers must continue to pay their share of contributions for 8 consecutive calendar quarters.
• Small Employer Assistance Grants provide up to $3,000 towards the cost of hiring temporary workers to replace employees on leave and up to $1,000 to reimburse the employer for significant additional wage-related costs incurred while an employee is on leave.

 

Interaction with Other PTO/Sick Leave Benefits

Annual Reporting Requirements

Integration with Short-Term Disability

Action Items for Employers

• Confirm Covered Employer status
• Register with Frances Online
• Confirm if a private/equivalent option is right for you (submit an application if necessary)
• Work with payroll vendor to implement payroll contribution process
• Create an internal procedure for payment of ongoing employee/employer contributions
• Communicate with employees regarding new payroll contributions that will be happening in 2023
• Post required notifications in the workplace(s)

The IRS and Treasury department have released Notice 2022-41 which corrects an inconsistency in the regulations for non-calendar year plans. This inconsistency follows along with the regulatory corrections of the “family glitch” for ACA coverage that were just finalized by the DOL. 
 

Which employers does the change apply to?

The change is only relevant for employers with non-calendar year Section 125 plans. Employers who have a calendar year Section 125 plan do not need to pay attention to this.
 

What is the change?

The newly permitted election change applies to individuals covered under a non-calendar year cafeteria plan who have elected family coverage and have dependents who become newly eligible to enroll in a Qualified Health Plan under an Exchange. The new guidance allows plans to allow participants to revoke family coverage under the group health plan to enroll dependents in coverage through the Exchange (thus changing their own election to self-only coverage under the plan.) Note that the change only applies to health plan election changes; it does not allow participants to make a change in a health FSA plan.
 

Why was this necessary?

Existing regulations allow for this election change opportunity for calendar year plans; however, the wording of the regulations constricted a parallel election change opportunity for participants in non-calendar year plans. The issue here is that, when dependents become newly eligible for Exchange coverage, the tax credit available to the family may make it more advantageous for the participant to opt dependents off of the group health plan in favor of Exchange coverage. This type of election change was previously prohibited under non-calendar year plans. The newly issued regulations conform to this type of election change for non-calendar year plans.
 

Effective Date

The effective date of this guidance is January 1, 2023.
 

Vita Plans

Vita will amend all Vita-created Section 125 Plan Documents to reflect this updated guidance for medical plan election changes.

San Francisco repeatedly renewed its Public Health Emergency Leave Ordinance related to COVID-19 over the past two years. Public sentiment affirmed this direction when San Francisco voters passed Proposition G, a new Public Health Emergency Leave Ordinance (PHELO) which makes permanent the public health emergency leave requirement for employers operating within San Francisco.
 

Ordinance Overview

The following are the key tenets of the ordinance:
 

• Effective Date: The ordinance becomes effective on October 1, 2022. 
• Only for Public Emergencies: The leave is only available during a declared local or statewide health emergency related to a contagious, infectious, or communicable disease.
• Covered Employers: Businesses with 100 or more employees worldwide are subject to the ordinance. 
• Employees Covered: All employees who work in San Francisco for a covered employer are entitled to Public Health Emergency Leave (PHEL), regardless of the duration of employment or job title, including part-time, temporary, seasonal, and salaried employees.
• Benefit Provided: Each employee who performs work in San Francisco must be provided up to 80 hours of paid Public Health Emergency Leave.
• In Addition to PTO: The paid leave is in addition to any other paid time off, including paid sick leave under the San Francisco Paid Sick Leave Ordinance.
• Teleworking Capacity: There are certain restrictions on using PHEL if an employee can telework without increasing exposure to disease or unhealthy air quality.
• Declaration of Emergency: A qualifying public emergency may be declared by the City of San Francisco or California’s health officer or when the Bay Area Air Quality Management District issues a Spare the Air Alert.

 

Leave Reasons

Employees may use this leave when they are unable to work (or telework) due to the following reasons:
 

• Order or Guidelines: The recommendations or requirements of an individual or general federal, state, or local health order (including an order issued by the local jurisdiction in which an employee or a family member the employee is caring for resides).
• Symptoms: The employee, or a family member the employee is caring for, is experiencing symptoms, seeking a medical diagnosis, or has received a positive medical diagnosis for a possibly infectious, contagious, or communicable disease associated with the public health emergency.
• Isolate or Quarantine: An employee, or a family member the employee is caring for, has been advised to isolate or quarantine by a healthcare provider.
• School Closure or Unavailable Care Provider: The employee is caring for a family member whose school or place of care is closed or whose care provider is unavailable due to a public health emergency.
• Air Quality Emergency: The employee is diagnosed with heart or lung disease, has respiratory problems, is pregnant, or is at least 60 years old and primarily works outside, and the Bay Area Air Quality Management District has issued a Spare the Air Alert.

Special note on Teleworking Capability: If an employee can telework without increasing the employee’s exposure to disease or unhealthy air quality, the employee may not use PHEL if the declared reason is an order or guideline, advice from a health care provider, or in the event of air quality emergency. Teleworking employees may still utilize PHEL for other covered reasons.
 

Benefit Calculations

• Same Basis as SF Paid Sick Leave: The ordinance uses the same rate of pay calculations as San Francisco’s Paid Sick Leave Ordinance.
• Exempt Employees: Employers pay PHEL in the same manner as they pay other forms of paid leave.
• Non-Exempt Employees: Employers pay PHEL using one of two methods:
  • The regular rate of pay for the workweek in which the PHEL is used 
  • Divide total wages (not including overtime premium pay) by the total hours the employee worked in the pay periods for the 90 days of employment prior to the employee’s use of PHEL.

 

Employer Obligations

• Leave Payment Timing: PHEL payments must be made to employees by the next regular pay period after the leave is taken. 
• Health Benefits: Health insurance benefits must be maintained while an employee is on a PHEL leave in the same manner as when the employee is an active employee.
• No Rollover: Employers are not obligated to roll over any unused PHEL to the next year.
• No Payout: Employers are not required to pay out any unused leave. 
• Doctor’s Note Restrictions: Employers may require a doctor’s note or other documentation to confirm an employee qualifies to use PHEL for an air quality emergency. The ordinance does not provide for any other opportunities for an employer to require or request documentation of a need for PHEL. 

 

Phased In Allocation of Hours

• October 1 – December 31, 2022: The allocation must equal or average (depending on the employee’s schedule) the number of hours worked over a one-week period that the employee regularly worked, not to exceed 40 hours.
• Beginning in 2023 Employees Working Full Time, Regular, or Fixed Schedules: The allocation must be equal to the number of hours the employee regularly works over a two-week period, not to exceed 80 hours.
• Beginning in 2023 Employees Working a Variable Schedule: The allocation must be equal to the average number of hours the employee worked over a two-week period or since the employee’s start date if after the beginning of the previous calendar year, not to exceed 80 hours.
• Future Employees: Future hired employees (who are not employed on these dates), must be allocated the maximum amount of PHEL available to the employee when a public health emergency commences.

Notice and Recordkeeping Requirements

• Employer Poster: Employers must post a poster notice in a conspicuous location. The poster should be posted in all available languages in the workplace and emailed to workers who do not frequent the workplace. 
• Employer Leave Balance Notice: Employers must provide notice of the amount of PHEL available to each employee in the same way they provide notice of regular California Paid Sick Leave (whether on a wage statement or other writing). If the employer offers unlimited paid leave or paid time off, the employer must note “unlimited” on the employees’ wage statements.
• Employer Recordkeeping: Employers must keep records documenting the hours worked and PHEL was taken for four years.
• Employee Foreseeability: If the employee’s need for PHEL is foreseeable, the employer can require employees to follow reasonable notice procedures.

Exemptions and Limitations

• Healthcare Worker Limitation: An employer of health care providers or emergency responder employees may elect to limit the employee’s use of this leave but may not prevent the employee from using it if the employee is unable to work due to due to an order or guidelines, advice from a health care provider, or in the event of air quality emergency.
• Non-Profit Exemption: The PHELO exempts certain non-profit organizations that do not engage in specific health care operations, and government entities other than the City of San Francisco.
• Collective Bargaining Exemption: The only exception for otherwise covered employers is for employees subject to a collective bargaining agreement that expressly waives PHEL in clear and unambiguous terms.

Penalties and Enforcement

• Non-Retaliation: Employees who assert their rights to receive Public Health Emergency Leave are protected from retaliation. 
• Governing Authority: San Francisco’s Office of Labor Standards Enforcement is responsible for the enforcement of the ordinance.
• Penalties: If PHEL is unlawfully withheld, the employee will be awarded an administrative penalty of the dollar amount of PHEL withheld multiplied by three or $500, whichever amount is greater. Penalties also exist for failing to post the PHEL notice and for failing to retain records.

Action Item for Employers

Employers impacted by the San Francisco PHELO should address the following action items prior to October 1, 2022:
 

• Update Policies: Review (and revise, if necessary) their leave of absence policies and processes.
• Address Recordkeeping: Update leave record-keeping practices (in the payroll system or other methods).
• Post Notice: Post the required Poster Notice.

U.S. Department of Health and Human Services regulations require annual notice to all plan participants regarding the Medicare Part D Prescription benefit “creditability” of your group health plan. This notice must be provided by October 14 to coincide with the annual Medicare open enrollment period which runs from October 15 to December 7. This notification provides Medicare-eligible employees with important information to help determine whether they need to enroll in Medicare Part D.
 

Again?  Didn’t I just do this after my medical plan renewal? 

Not quite. Same law, different requirement. In addition to this annual employee disclosure requirement each fall, plan sponsors must report creditability information directly to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the first day of the medical policy year. Many Vita clients have a January 1 plan renewal, so for many employers, the deadline is the end of March.
 

How Do We Know If Our Prescription Benefit Is “Creditable”?

A prescription drug plan is considered "creditable" if the prescription drug benefits are expected to pay as much as or more than standard Medicare Part D prescription drug coverage. If a plan will not pay out as much as Medicare prescription drug plans pay, it is considered "non-creditable".

If you are a Vita client, you can confirm the creditability of your own plan(s) by referring to your ERISA Welfare Plan Summary Plan Description (SPD).
 

Employer Action Item

The ERISA SPD that Vita provides to clients has been designed to incorporate all of the necessary disclosure language for the Medicare Part D Creditability requirement.  If you have distributed this SPD to your employees in 2022 (or since October 15 of last year), you are already in compliance with the annual disclosure requirement. Not a Vita client and need some help? Let's chat!

If you prefer to send a separate Medicare Part D creditability notice, you may use the sample documents (model notices) available through the Center for Medicare & Medicaid Services website. There you can find sample documents for plans that are creditable or non-creditable for Medicare Part D purposes. Please note that the vast majority of group health plans include prescription benefits that are creditable.