Employers that sponsor 401k, 403(b) and other retirement plans must comply with federal legislation known as SECURE Act 2.0…..
SECURE includes many optional provisions, which can be adopted at the employer’s discretion.
Perhaps the most popular optional change:
An increase in the mandatory distribution threshold for terminated participants from $5,000 to $7,000, effective January 1, 2024.
Advantages:
- Participants with small account balances are more likely to become “missing” participants when they terminate their employment.
- Fewer participants under a plan can reduce the plan’s costs in the form of fewer mailings.
- Fewer participants may eliminate your plan’s need for an audit.
- A defined benefit plan may realize a reduction in their PBGC premium expense.
One concern:
Plan amendments for this change are not required to be adopted until the last day of the first plan year beginning on or after January 1, 2026. That’s a long time from now.
Some recordkeepers (specifically for individually designed retirement plans) may require a plan to be amended before implementing this change, but many will implement without an amendment.
Accordingly, particularly if you sponsor an individually designed retirement plan (not a prototype plan or volume submitter plan), you may want to discuss this change with your #ERISA counsel and have counsel prepare a Plan amendment now, so you don’t forget to do so later.