SECURE 2.0 and the 401(k) Pension Plan: An Update

As part of the Consolidated Appropriations Act of 2023, Congress passed legislation—often referred to as “SECURE 2.0”—with a range of provisions affecting employer-sponsored plan coverage, retirement savings and more. NRECA continues to review many optional provisions of SECURE 2.0; others are mandatory and require certain changes that affect the 401(k) Pension Plan. Here is an overview of the latter:

Roth catch-up contributions
While the law originally required this provision to be implemented by January 1, 2024, the IRS delayed that date to January 1, 2026, a two-year reprieve. When it goes into effect in 2026, 401(k) Plan participants who are age 50 or older and whose previous-year FICA wages are above a certain annual threshold will be allowed to make “catch-up” contributions only on a Roth (after-tax) basis. Co-ops do not need to take any action regarding catch-up contributions at this time. Learn more about preparatory changes NRECA is making to W-2 payroll collection data feeds in this article.

Roth assets excluded from required minimum distribution calculations
Federal law requires retirees to take out some of their 401(k) savings as required minimum distributions. SECURE 2.0 makes a change to how much they will need to withdraw if they have made Roth contributions. Beginning January 1, 2024, Roth monies will be excluded from the calculation of pre-death RMDs. This will require changes to how NRECA calculates required minimum distributions and may result in lower payouts. Additionally, the change will allow participants with Roth contributions who wish to minimize distributions the option of leaving their funds in the 401(k) Plan instead of having to roll them over to a Roth IRA.

Change in the age for required minimum distributions
SECURE 2.0 raised the age for required minimum distributions from 72 to 73, effective at the start of 2023. Participants who turned 72 this year and were already retired (or retired in 2023) will not need to take required minimum distributions until December 31, 2024; they will receive notices from NRECA later next year.

Eligibility for long-term part timers
Prior legislation created a new path to 401(k) Plan participation for part-time employees. Cooperatives should already be tracking hours of service so that they can offer participation in 2024 to anyone who worked 500 or more (but fewer than 1,000) hours in 2021, 2022, and 2023.

SECURE 2.0 shortened this path. Effective in 2025, only two consecutive years of part-time service are required. Individuals eligible under this new rule can make employee deferrals but can’t receive employer contributions. More detail is available on the Counting Hours of Service page of the BA Guide – look for “Special Situations.”

For questions related to these plan changes, contact your NRECA field representative.