Perspectives : Fiduciary Regulatory | December 15, 2023

SECURE 2.0—2024 look ahead

Updated January 22, 2024
It’s been nearly one year since the SECURE 2.0 Act was passed. There have been some developments since then, and the industry still awaits further guidance from regulators on certain topics. Vanguard is committed to keeping plan sponsors and consultants up to date on any changes to the law, new guidance from regulators, and updates to our strategy for approaching the law’s many provisions.
SECURE 2.0 includes more than 90 provisions in total—some mandatory, some optional—that are set to take effect throughout the next few years. As we approach January 1, 2024, when a handful of the law’s provisions will take effect, we want to provide you with a few important updates and reminders.

Roth catch-up contribution provision delayed—but don’t wait to act

Earlier this year, regulators issued a two-year administrative transition period for the implementation of the Roth catch-up contribution provision. Now set to take effect January 1, 2026, participants ages 50 or older who earned more than $145,000 in FICA wages in the previous calendar year can only make catch-up contributions as Roth contributions.
Plans that don’t allow Roth contributions will need to add this feature to allow catch-up contributions of any kind after this date (including pre-tax catch-up contributions).

Affected plan sponsors are strongly encouraged to partner with Vanguard now and not wait to act. We recommend that plans add a Roth contribution feature to provide tax diversification for participants and help ensure compliance with the Roth catch-up provision by the 2026 effective date.

Regulators are expected to provide more guidance on this rule in the future. Look for updates from us along the way.

Long-term part-time employee eligibility begins

The long-term part-time (LTPT) employee eligibility provision will affect each plan differently. Plans that exclude part-time employees should consult with their ERISA counsel to determine how their plan will be affected. These plans can also consider treating part-time employees the same as full-time employees to avoid the need to comply with LTPT rules.

At a high level, there are two dates to be aware of:

  • January 1, 2024: LTPT employees—part-time employees who worked at least 500 hours in each of three consecutive years—will be eligible to make elective deferrals to their 401(k) plan.

  • January 1, 2025: The definition of LTPT employees is changed to part-time employees who worked at least 500 hours in each of two consecutive years. And coverage is expanded to include 403(b) plans.

LTPT employee eligibility for 2024 will be determined by tracking hours worked since January 1, 2021. Plan sponsors should be working with Vanguard to provide all the information needed to identify LTPT-eligible employees.

On November 24, 2023, the IRS issued a proposed regulation providing additional guidance on this provision. For now, plan sponsors should continue to focus on meeting implementation requirements ahead of the January 1, 2024, effective date.

Roth dollars excluded from required minimum distributions

Beginning January 1, 2024, Roth dollars won’t be subject to a required minimum distribution (RMD), nor will Roth dollars be included when calculating RMD amounts. Plan sponsors don’t need to take any action. We’ll make sure that Roth sources are exempt from RMD calculations and that all participant materials and forms are updated accordingly.

We’re in communication with affected participants. Those who currently receive RMDs containing both Roth and non-Roth dollars were notified their RMDs will likely be lower beginning in 2024. And those with retirement plan balances that consist entirely of Roth dollars were informed their RMD payments will stop in 2024.

Vanguard’s approach to the long list of optional provisions

SECURE 2.0 includes a significant volume of optional provisions with various effective dates. We’re strategically prioritizing optional provisions based on three factors:
Urgency: Optional provisions that either took effect upon enactment of SECURE 2.0 or have effective dates of January 1, 2023, and January 1, 2024.
Desirability: The extent to which the optional provisions drive financial wellness and provide additional flexibility to plan sponsors and participants.
Feasibility: How quickly the desired provisions can be adopted with minimal disruption to the plan sponsor and participant experience.
Many of these provisions aren't “one-size-fits-all” features. What benefits one participant population may not equally benefit others. We’ll work with plan sponsors and consultants to identify optional provisions that, in addition to aligning with our mission to drive participant outcomes and financial wellness, are the best fit for plan sponsors and their participants.

What else is on our radar?

Emergency savings: SECURE 2.0 created the option for plans to offer participants an emergency savings account. In the second half of 2024, we plan to introduce our proprietary nonretirement savings vehicle for participants, called Cash Plus. More details will be shared in the coming months.
Qualified disaster recovery distributions: This is a new type of distribution of up to $22,000 for participants impacted by a federally declared natural disaster. It’s exempt from the 10% early withdrawal penalty tax and can be repaid within three years from the date of disbursement. We’ll begin offering this option to plans on January 1, 2024.
Automatic cash-out limit increase: Currently, plans may immediately distribute and roll over former employees’ balances that fall between $1,000 and $5,000. SECURE 2.0 gives plans the option to increase this limit from $5,000 to $7,000. We’ll give plans the option to implement this change in 2024.

Register for our Q4 2023 webinar to learn more

If you’re interested in a deeper dive into these topics, check out our recently recorded webinar. You’ll hear directly from Vanguard experts on the latest SECURE 2.0 updates, the most frequently asked questions from plan sponsors and consultants, and what to expect from us in the coming months.