IRS Releases Guidance Delaying SECURE 2.0 Roth Catch-Up Contribution Requirement

Industry News

Print

IRS Releases Guidance Delaying SECURE 2.0 Roth Catch-Up Contribution Requirement

On August 25, 2023, the Internal Revenue Service (IRS) released guidance under Notice 2023-62 announcing a transition period for the implementation of the new Roth “catch-up” contribution requirement of the SECURE 2.0 Act of 2022 (SECURE 2.0). Specifically, Notice 2023-62 provides relief regarding the SECURE 2.0 requirement that age 50 catch-up contributions for higher income participants in Section 401(k), 403(b), and governmental 457(b) plans be designated as Roth contributions (referred to as the “mandatory Roth catch-up” provision). 

During the past year, public and private sector plan communities, including plan sponsors and retirement plan administrators, have expressed concerns related to the IRS implementing the mandatory Roth catch-up provisions by January 1, 2024, which was the original effective date in the SECURE 2.0 Act. Notice 2023-62 helps to relieve the serious concerns that no catch-up contributions were allowed beginning in 2024 because of a drafting glitch. It also provides some of the requested relief during a two-year “administrative transition period.” Notice 2023-62 extends compliance for the requirement for a two-year transition period until the first taxable year after December 31, 2025 (i.e., January 1, 2026). 

Under Section 603(c) of SECURE 2.0, the provisions of Section 603 apply to taxable years beginning after December 31, 2023. However, the IRS noted, the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period. Section 603 of SECURE 2.0 requires that catch-ups from participants in 401(k), 403(b) or governmental 457(b) plans earning $145,000 or more (indexed after 2024) be designated as Roth contributions. 

According to the IRS, “The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement. The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.”

Notice 2023-62 provides relief and guidance to plan sponsors, providers and participants by allowing time to implement the mandatory Roth catch-up provisions without triggering any plan qualification issues. Further, it minimizes the potential disruption for affected participants. The relief will provide critical time needed to implement the requirement and avoid the unintended consequences that could have led to a negative impact on retirement savings.

Under the Notice 2023-62 guidance, catch-up contributions will be treated as satisfying requirements of Section 414(v)(7)(A) through December 31, 2025, even if the contributions are not designated as Roth contributions. In addition, a plan that does not provide a designated Roth contribution will be treated as satisfying the requirements of Section 404(v)(7)(B).  

The IRS indicated that it intends to issue future guidance on the Roth catch-up requirement that will be released to facilitate ongoing implementation efforts. 

Comments to the IRS on Notice 2023-62 are due by October 24, 2023. 

IRS Notice 2023-62 is available here.

International Foundation Releases Health Care Costs 2023 Survey Results

Industry News

Print

International Foundation Releases Health Care Costs 2023 Survey Results

On August 15, 2023, the International Foundation of Employee Benefit Plans (IFEBP) released its report, Health Care Costs Pulse Survey: 2024 Cost Trend. The report was based on the 2023 survey of U.S. employers which projects an increase of 7.0% in health care costs for 2024.

According to the survey responses, the primary reasons contributing to an increase in health care costs include:

  • Utilization due to chronic health conditions (22%);
  • Catastrophic claims (19%);
  • Specialty/costly prescription drugs/cell and gene therapy (16%); and
  • Medical provider costs (14%). 

In addition, the respondents indicated that the most effective initiatives to manage costs in 2024 would include: 

  • Utilization control initiatives (e.g., prior authorization, case management, disease management and nurse advice lines) (22%);
  • Cost-sharing initiatives (e.g., deductibles, coinsurance, copays and premium contributions) (16%);
  • Work and wellness programs (13%);
  • Plan design initiatives (e.g., dependent eligibility audits, high-deductible health plans, spousal surcharges/carveouts, formulary changes) (12%); and
  • Purchasing/provider initiatives (e.g., telemedicine, centers of excellence, health care navigators and advocates, coalitions and quality initiatives) (12%).

The report is available here.

Commonwealth Fund Analyzes Affordability of Health Care for Older Americans with Employer Coverage

Industry News

Print

Commonwealth Fund Analyzes Affordability of Health Care for Older Americans with Employer Coverage

On August 10, 2023, the Commonwealth Fund released its issue brief, Can Older Adults with Employer Coverage Afford Their Health Care?  The Commonwealth Fund examined whether employer health coverage is providing adequate protection for health care costs for older adults ages 50 to 64. Overall, this age group is considered to be at a higher risk of health care expenditures. The brief is based on findings from the Commonwealth Fund Biennial Health Insurance Survey, 2022. 

The brief used data from the survey to analyze whether older adults ages 50 to 64 with employer health care coverage find their health plans and their health care to be affordable. In particular, the study focused primarily on the experience of older adults with low and moderate income.

Low income is defined as less than 200% of the federal poverty level (or $27,180 for an individual and $55,500 for a family of four in 2022). Moderate income is defined as 200% of slightly under 400% of the federal poverty level (or $54,360 for an individual or $111,000 for a family of four in 2022).

The key findings include:

  • About 50% of low-income older adults and more than 33% of those with moderate income indicated that it was very or somewhat financially challenging to afford their premiums;
  • 54% of low-income adults and about 33% of moderate-income adults were underinsured and facing high out-of-pocket costs and/or deductibles compared to their income;
  • About 50% of low-income adults reported delaying or eliminating needed health care due to cost;
  • Of the older adults that had difficulties paying medical bills and paying off medical debt, about 44% were low-income adults and 40% were those with moderate income; and
  • About 63% of those older adults that are facing medical bills and debt were not confident that they had sufficient assets to retire.

The brief indicated that, “One of the most important functions of health insurance is to protect people against catastrophic health care costs. Older adults also depend on good health insurance to enable access to care without the fear of incurring medical debt. The survey data in this brief indicate employer health insurance is failing many older adults especially those with low and moderate incomes.”

The brief is available here. 

 

CRR Issues Brief on Late Boomers’ Retirement Wealth

Industry News

Print

CRR Issues Brief on Late Boomers’ Retirement Wealth

On August 1, 2023, the Center for Retirement Research at Boston College (CRR) released its issue brief, What Happened to Late Boomers’ Retirement Wealth? The brief indicates that Late Boomers have less retirement wealth than previous cohorts, including lower than expected 401(k) balances. CRR analyzed the changing demographics and labor market experience to examine the decline in retirement wealth.

The analysis suggested that there were two primary factors that impacted the retirement wealth of Late Boomers including:

  • The changing composition of households towards lower-wealth with part of the decline due to a decrease in the share of the cohort that are White, married and have college degrees; and
  • A weakening connection between work and wealth accumulation for the Late Boomers who were in their 40s during the Great Recession and were unable to recover financially.

The brief concludes, “The Great Recession story is a bit of good news for younger cohorts, as some of the downward pressure on their wealth holdings should abate.”

The brief is based on data using the Health and Retirement Study (HRS) to examine actual patterns of wealth accumulation by cohort and the Survey of Consumer Finances (SCF) to get information on the experience of Late Boomers over their work life.

The brief is available here.

S&P Global Provides U.S. Public Pension Fiscal 2023 Update

Industry News

Print

S&P Global Provides U.S. Public Pension Fiscal 2023 Update

Recently, S&P Global released its report, U.S. Public Pension Fiscal 2023 Update: Funded Ratios Stable, Inflation Retreats, and POB Issuance Stops. S&P Global reported that U.S. public pension funded ratios are projected to remain stable or slightly improve due to the expected improvements in asset performance for fiscal year ended June 30, 2023.

​According to S&P Global, “After a slow start to the fiscal year, we estimate that a typical public pension plan will have experienced a return of around 9% for fiscal 2023…, which equates to a 2% gain for the year above the 7% return assumption.” 

Other key highlights include:

  • Although high inflation continues to move toward previous lows, volatility may affect pension funding if public pension plan sponsors experience budgetary stress; and
  • Pension obligation bond (POB) issuances have completely ceased this year due to the expectation that volatile interest rates may decline in the near future.

The report is available here.