As discussed in our prior Advisory, the SECURE 2.0 Act of 2022 (SECURE 2.0) made significant changes to U.S. retirement plan laws. One key change is the requirement that, starting for tax years beginning after December 31, 2023, catch-up contributions to 401(k), 403(b), and certain other plans must be made on a Roth basis, except in the case of plan participants whose wages are $145,000 or less (subject to annual inflation adjustment) for the prior calendar year. The 2024 effective date of this change has been controversial — many employers and retirement industry players have questioned whether it is possible in such a short timeframe to make the many administrative changes necessary to implement the new requirements, especially in the absence of comprehensive IRS guidance on the new rules.
In response to these concerns, on August 25, 2023, the IRS announced in Notice 2023-62 a two-year administrative transition period during which plans are not required to comply with SECURE 2.0's mandate to treat catch-up contributions for more highly paid plan participants on a Roth basis. Employers and recordkeepers will welcome this compliance relief as it will give them much needed time to make necessary modifications to their administrative systems and data collection processes. Further, the delay will provide the IRS with time to issue additional much needed guidance on the new rules. Indeed, the notice states that the IRS intends to issue guidance relating to the Roth requirement for certain catch-up contributions, including how the rules apply in the case of a plan maintained by more than one employer.
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