On Friday, December 23, 2022, the house passed the omnibus bill that included dozens of retirement-related provisions and we expect it to be signed by President Biden quickly.  The good news for current retirement plan sponsors is many of the provisions will be elective or not impact your retirement plans until 2024 or later. However, there are a few items that will go into effect in less than ten days that we summarized below.

Key Provisions Effective January 1, 2023

  • The age for required minimum distributions (RMDs) will be pushed back to 73 on January 1, 2023. On January 1, 2033, the new age for RMDs will be 75. Plan sponsors should receive a communication from their retirement plan recordkeeper soon, if not already, on how they will administer this change.
  • Employers will no longer be required to provide certain participant notices for eligible, yet unenrolled retirement plan participants. However, employers will be required to send an annual reminder of that participant’s eligibility to participate in the plan.
  • 403(b) plans will be allowed to invest in collective investment trusts.

Additional Provisions Effective January 1, 2023

  • Pooled employer plans (PEPs) may designate a named fiduciary (other than an employer) to collect contributions to the plan.
  • 403(b) plans can join multiple employer plans (MEPs) or PEPs with relief from the “one bad apple rule,” which stipulates that an entire MEP could be disqualified based on the actions of one participant in the plan.
  • SIMPLE IRAs and SEP IRAs will be allowed to accept Roth contributions (i.e., money that’s already been taxed).

Key Provisions Effective January 1, 2024

  • Catch-up contributions will be subject to Roth tax treatment for participants with compensation of $145,001 or more (this number will be indexed to inflation).
  • Employers may transfer former employees’ retirement balances to an IRA if the vested account balance is $7,000 or less. This is a $2,000 increase from the current rules.
  • Participants can withdraw up to $22,000 for costs related to a natural disaster. These distributions would be taxed as gross income over three years without any additional penalty. Furthermore, survivors of domestic abuse, via self-certification, can withdraw the lesser of 50% of their balance or $10,000 without penalty.

Elective Provisions for Employers to Consider

  • Effective January 1, 2024, employers can choose to match student loan payments with retirement plan contributions.
  • Employers can choose to automatically opt employees into an emergency savings account at no more than 3% of an employee’s compensation with an annual cap of $2,500. Employees could then take distributions without penalty up to $1,000 per year. These contributions will be made in a Roth, after-tax, format.
  • Effective January 1, 2025, enhanced catch-up contributions will be available for employees age 60 through 63. The new limits for this age group will be the greater of $10,000 or 150% of the regular catch-up limit set by the IRS.

There are many more retirement-related provisions in this bill and our service team at Cerity Partners will keep you informed. We wish all of you a joyful holiday season and we look forward to seeing you again in 2023.

Please read important disclosures here.