How do we SECURE the IRS Changes to our Retirement Plan Document?

Change happens everywhere. The season changes, technology changes, our physical appearance changes as we age. What else changes? The regulations of retirement plans. The most recent changes to qualified retirement plans were the Setting Every Community Up for Retirement Enhancement Acts, SECURE, for short.

The SECURE 1.0 Act was passed by congress in December 2019 and became effective January 1, 2020. This changed some of the Required Minimum Distribution (RMD) regulations, modified qualified automatic contribution arrangements and introduced requirements and guidelines on participation for Long-Time Part-Time (LTPT) employees.

SECURE 2.0 passed December 29, 2022 with a whole heap of regulation changes, that many didn’t quite understand. In total, SECURE 2.0 changed more than 90 provisions affecting qualified 401(k) plans ranging from more RMD updates to numerous distribution options from a qualified retirement plan. Retirement plan administrators are still waiting for final guidance on some of these changes as they were unclear when initially signed into law.

How do changes such as the SECURE acts affect a plan document? Current qualified 401(k) plans on a prototype volume submitter are hopefully operating under what’s called a Cycle 3 document. Over time, the IRS requires plans to be restated to build in the changes of regulations since the previous restatement period (restatements happen every 6 years). Qualified 401(k) plans were required to restate to Cycle 3 by July 31, 2022. The next restatement, named Cycle 4, will have an adoption window between September 2026 to September 2028.

How are changes such as SECURE 1.0 and 2.0 included in your document when there isn’t a restatement in process? Volume submitter document providers will draft what’s called an Interim Amendment after final regulations have been approved to bring in any new law changes. This provides employers with communication that can be distributed to participants regarding those changes in the form of a Summary of Material Modification, or SMM. During the restatement period, we hope those changes are also included in the updated document to alleviate the need for additional notices/communication. Unfortunately, a majority of SECURE 2.0 will not be incorporated into the Cycle 4 document, requiring an Interim Amendment be adopted. SECURE 1.0 will however be included, with a due date of December 31, 2026. Yes, I’m scratching my head as well since Cycle 4 requires an adoption date by September 2028 but SECURE 1.0 must be adopted prior. We are expecting the need to adopt an interim amendment for SECURE 1.0 as well, sigh. Plan document providers are still working with the IRS to get approval of these interim amendments.

So how does an employer incorporate these changes that are effective now without being in their document or in an amendment? The Plan Sponsor MUST ensure that any required changes are being followed while also documenting the operations of any elective changes (i.e. student loan matching, employer contributions as Roth, or any of the numerous distribution options available under SECURE 2.0). Some of the elective changes of SECURE 2.0 are still in limbo with how exactly they are to operate which makes it tricky for sponsors to decide. Thankfully the changes that are required have been finalized or deferred to a later date. If a sponsor chooses to adopt any of the optional changes, I urge them to document what and how they plan to operate and communicate with their document provider to ensure they are adopted appropriately.

To conclude, the IRS periodically comes out with regulation changes to qualified plans requiring sponsors to adopt interim amendments until they can be finalized into their plan documents. Sometimes, these changes aren’t finalized but can still be used if the sponsor wishes. Documenting how the plan will operate with these changes is essential so it can be incorporated properly into the plan document. The Retirement Plan Division of Greenleaf Trust has been staying up to date with the latest legislature decisions to ensure our clients remain in compliance with any law changes.