The Washington Update at Actuarial Insights was necessarily fast-paced. SECURE 2.0 includes dozens of new retirement plan-related provisions and we wanted to give an overview of as many as time permitted.
SECURE 2.0 included several provisions of particular interest to defined benefit plan professionals. The new law includes provisions relating to cash balance plan testing — to demonstrate compliance with the anti-backloading rules in IRC Section 411(b), cash balance and other hybrid plans with variable interest-crediting rates can use a reasonable projection of the rate not greater than 6%. This affects the projected rate for compliance testing, not the plan's actual interest crediting rate. SECURE 2.0 also provided that for plan years after 2023, inflationary indexing of PBGC variable rate premiums for single-employer plans will end. They will be frozen at $52 per $1,000 in unfunded vested benefits.
Inflationary indexing continues on the variable rate premium cap and flat-rate premiums. Annual funding notices got a bit of an update in SECURE 2.0 — disclosure of a plan's funded level for the notice year and the prior two years will be based on the year-end market value of assets and liabilities rather than the funding target attainment percentage. The notices must also include some additional details.
In addition, SECURE 2.0 included new rules for mortality tables: for purposes of the minimum funding rules, a plan is not required to assume beyond the plan's valuation date future mortality improvements at any age greater than 0.78%. This 0.78 figure may be updated to reflect overall mortality changes as projected by the Social Security Administration.
The new law also extends the permission for defined benefit plans to transfer excess pension assets to retiree health accounts until Dec. 31, 2032, from 2026. In addition, it requires plan administrators to provide extensive disclosures to participants and beneficiaries offered lump sums during a window period, not later than 90 days before the window opens.
SECURE 2.0 provides that the Department of Labor must review its current guidance on the fiduciary standards for selecting an insurance company or other annuity provider in a pension risk transfer and report the findings to Congress.
SECURE 2.0 is a “big bill.” In addition to the defined benefit-focused provisions, it has comparatively more rules for defined contribution plans. The Washington Update also covered these. These new rules include auto-enrollment and start-up credits for specific new plans. We also covered new provisions relating to required minimum distributions, plan corrections, disclosures, auto-enrollment, and more. Congress also created a new rule permitting employers to add emergency savings accounts for non-highly compensated employees linked to their retirement plans and we spent some time on that as well.
The audience had many good questions — they always kept us on our toes. Fortunately, we anticipate that eventual guidance from the IRS and Labor Department will clarify the gray areas.
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