On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023 (the budget bill). Division T of the budget bill is the SECURE 2.0 Act of 2022 (SECURE 2.0), which makes numerous changes to the law applicable to qualified pension and profit-sharing plans. Most of the changes are to the Internal Revenue Code (Code), but there are many important changes to the Employee Retirement Income Security Act (ERISA) as well. The changes have varied effective dates and some changes were effective upon enactment. This alert will discuss the changes with respect to the required beginning date for the commencement of distributions from qualified plans. Future alerts will discuss other changes.

Effective Date: The increase in the age for required minimum distribution is effective for distributions required to be made after December 31, 2022, with respect to individuals who attain age 72 after December 31, 2022.

Background

Section 401(a)(9) of the Internal Revenue Code (Code) requires qualified plans to provide for minimum distributions for participants who have reached the required beginning date. The required beginning date (prior to the SECURE Act changes) was the April 1 following the later of the calendar year in which the participant attained age 70½, or the calendar year when the participant retired from service with the employer maintaining the plan. For participants who were 5-percent owners (as defined) in the plan year ending in the calendar year when they attained age 70½, the required beginning date was simply the April 1 following that calendar year.¹

The SECURE Act² amended section Code 401(a)(9) to change age 70½ to age 72. The change applied to distributions required to be made after December 31, 2019, to individuals who attain age 70½ after that date. The Internal Revenue Service (IRS) proposed regulations under section 401(a)(9) to reflect the changes made by the SECURE Act on February 24, 2022.³

SECURE Act 2.0 Changes

Section 107 of the SECURE Act 2.0 amended section 401(a)(9) of the Code to increase the age for the required beginning date for individuals. The required beginning date for individuals who are not 5-percent owners is now the April 1 following the later of the calendar year in which the employee retires, or the calendar year in which the employee attains the “applicable age.” For a 5-percent owner, the required beginning date is the April 1 following the calendar year in which the employee attains the “applicable age.”

Cheiron Observations: SECURE Act 2.0 requires no change for an individual who attained age 72 prior to 2023. However, there is a logical issue for individuals who were born in 1959 and will attain age 74 in 2033. An individual who attains age 74 in 2033 will attain age 73 in 2032, which is before January 1, 2033. The individual will be in both categories. While this issue will not be a major concern for a number of years, either the statute will have to be corrected or the IRS will have to resolve the issue in regulations, if possible. Because the SECURE Act 2.0 allows until 2025 (or later in some cases) for plan amendments, there is time to resolve the issue before plan language has to be changed for the new law.

Cheiron pension consultants can assist you in reviewing the changes in plan procedures that may be needed and the financial consequences that may result.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

¹Under Code section 408, this is also the required beginning date with respect to individual retirement accounts (IRAs).

²Setting Every Community Up for Retirement Enhancement Act of 2019, which was included in the Further Consolidated Appropriations Act, 2020.

³See the Cheiron Pension Alert of March 8, 2022, for a discussion of the proposed regulations.