Congress included “SECURE 2.0 of 2022” in the Consolidated Appropriations Act, 2023, the $1.7-trillion omnibus spending bill, which was signed by President Biden on December 29, 2022 (the date of enactment). Secure 2.0 is a follow-up to the Setting Every Community Up for Retirement Enhancement Act passed in 2019, now known as “SECURE 1.0.”
The IRS recently announced the 2022 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. Generally, the IRS increased the applicable limits for 2022, although certain limits remained unchanged. The following limits apply to retirement plans in 2022:
- The limit on elective deferrals under 401(k), 403(b), and eligible 457(b) plans increased to $20,500.
- The limit on additional catch-up contributions by participants age 50 or older remains unchanged at $6,500. This means that the maximum amount of elective deferral contributions for those participants in 2022 is $27,000.
- The Internal Revenue Code (“Code”) Section 415 annual addition limit is increased to $61,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $245,000 for defined benefit plans.
- The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $305,000.
- The dollar level threshold for becoming a highly compensated employee under Code Section 414(q) increased to $135,000 (which based on the look-back rule is applicable for HCE determinations in 2023 based on compensation in 2022).
- The dollar level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $200,000.
Employers considering layoffs during this period of economic uncertainty should be aware that extensive layoffs could inadvertently cause a partial termination of their company’s qualified retirement plan. Employers should monitor their employee turnover rate and consult with benefits counsel to determine the potential impact on their retirement plans.
Partial plan terminations can occur where a significant change to the plan or a significant event affects the rights of employees to vest in their plan benefits, such as termination of a large group of employees.