The June Monthly Minute highlights EPCRS expansion under SECURE 2.0 as well as various SECURE 2.0 technical corrections, and the termination of COVID-19 relief previously applicable to HDHPs.
IRS Guidance on SECURE 2.0 EPCRS Expansion
As reported in the January 2023 Monthly Minute, Section 305 of SECURE 2.0 significantly expanded the Employee Plans Compliance Resolution System (EPCRS). Notably, Section 305, effective December 29, 2022, expanded EPCRS to (1) allow more types of errors to be corrected through self-correction, e.g., plan loan errors, (2) apply to inadvertent IRA errors, and (3) exempt certain failures to make RMDs from otherwise applicable excise taxes. A couple of weeks ago, the IRS released Notice 2023-43 which offers interim guidance on SECURE 2.0’s EPCRS expansion.
Among other things, Notice 2023-43 provides that a plan sponsor may self-correct an “eligible inadvertent failure” (including one relating to a plan loan) before the EPCRS program is formally updated as long as certain conditions are met and the failure is not specifically exempted; however, this leeway does not apply IRA custodians, nor does it apply to certain specified failures (e.g., failure to initially adopt a written plan or significant failures in terminated plans). The required conditions include:
- The failure is not egregious.
- The failure is not identified by the IRS before actions are taken showing a commitment to self-correct.
- Self-correction is made within a reasonable time after identification.
- The correction otherwise satisfies EPCRS’ current self-correction requirements.
KMK Comment: For plan sponsors who were skittish about utilizing SECURE 2.0’s expanded EPCRS self-correction due to lack of guidance, Notice 2023-43 offers a path forward. Plan sponsors should continue to work closely with their legal counsel when self-correcting under Section 305 to ensure the conditions of Notice 2023-43 are satisfied and to keep abreast of forthcoming guidance.
It’s All in the Details: SECURE 2.0 Technical Corrections
Late last month, congressional leaders notified the IRS of its intent with respect to certain SECURE 2.0 provisions and the need for corresponding technical corrections. Technical errors were identified in Sections 102, 107, 601, and 603 of SECURE 2.0 as follows:
- Section 102 increases the credit for small employer pension plan startup costs (“startup credit”), in part by allowing eligible employers a credit for a portion of employer contributions made to the plan. While provision could be read to subject the additional credit for employer contributions to the dollar limit that otherwise applies to the startup credit, Congress intended the new credit to be in addition to the startup credit.
- Section 107 changes the age on which the required beginning date (“RBD”) for required minimum distributions (“RMDs”) is based. Congress intended to increase the applicable age from age 72 to age 73, for individuals who turn 72 after December 31, 2022 and who turn 73 before January 1, 2033, and to increase the applicable age from age 73 to age 75 for individuals who turn 73 after December 31, 2032. However, with respect to the increase from age 73 to age 75, the provision could be read to apply such increase to individuals who turn 74 (rather than 73) after December 31, 2032, which does not reflect Congressional intent.
- Section 601 permits SIMPLE IRA plans and SEP plans to include a Roth IRA. Section 601 could be read to require contributions to a SIMPLE IRA or SEP plan to be included in determining whether or not an individual has exceeded the Roth IRA contribution limit. However, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit.
- Section 603 requires catch-up contributions under a retirement plan to be made on a Roth basis, for taxable years beginning after 2023, if the participant’s wages exceeded $145,000 for the preceding calendar year. A conforming change to section 603 might be read to disallow catch-up contributions (pre-tax or Roth) beginning in 2024. Congress did not intend to disallow catch-up contributions nor to modify how the catch-up contribution rules apply to employees who participate in plans of unrelated employers. Congress’ intent was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or a Roth basis.
KMK Comment: While the clarifications are welcomed news for retirement benefits practitioners, no timeline for releasing the technical corrections was announced. We will keep you apprised of when official SECURE 2.0 corrections are released. As well, it is widely recognized that in addition to these technical corrections, IRS guidance on the implementation and operation of many aspects of SECURE 2.0 is desperately needed. Unfortunately, there has been no indication of when such IRS guidance may be provided.
Closing Time for COVID-19 HDHP Relief
In light of the end of the COVID-19 National Emergency, the IRS announced that relief previously offered under Notice 2020-15 will come to an end. For plan years ending after December 31, 2024, an HDHP is not permitted to provide health benefits associated with COVID-19 testing and treatment without a deductible, or with a deductible below the minimum deductible (for self-only or family coverage) for an HDHP, except as otherwise provided in IRS Notice 2023-37. However, the Notice also clarifies that items and services recommended with an “A” or “B” rating by the USPSTF on or after March 23, 2010, are treated as preventive care for purposes of section 223(c)(2)(C) of the Code (regarding pre-deductible HDHP coverage of preventive care), regardless of whether these items and services must be covered without cost sharing under PHSA 2713. Accordingly, if COVID-19 testing were to be recommended with an “A” or “B” rating by the USPSTF, then that testing would be treated as preventive care, regardless of whether it must be covered without cost sharing.
KMK Comment: While Notice 2023-37 announced an end to the flexibility permitted under earlier-issued COVID-19 relief, it also provides a welcomed clarification about HDHP coverage of COVID-19 testing and treatment going forward. Plan sponsors should work with their service providers and legal counsel to ensure plan design, plan documents and employee communications accurately reflect these updates.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues