Employee benefits and executive compensation update

As we move into the final quarter of 2022, Congress is considering two separate bills that would make significant changes to retirement plans. The Senate is expected to act on the bipartisan Enhancing American Retirement Now (EARN) Act introduced by the Senate Finance Committee in September 2022. In addition, the Securing a Strong Retirement Act of 2022 (SECURE 2.0) was passed by the House in June 2022 and has bipartisan support. SECURE 2.0 expands and clarifies certain provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. With all of that said, the following topics of interest will be important for you to consider both for year-end tax planning and perhaps for tax planning in the coming year:

1. Maximum age for IRA contributions: As of 2020, there is no longer an age limit prohibition for making contributions to a traditional IRA.
2. IRA catch-up contributions: Currently, catch-up contributions to IRAs are limited to $1,000. Both SECURE 2.0 and the EARN Act would index the limit on an annual basis. Catch-up contributions to IRAs would continue to be pre-tax.
3. Required age for required minimum distributions (RMD) is age 72: This allows taxpayers to retain their retirement savings in tax-favored arrangements, thus delaying income tax on the RMDs. SECURE 2.0 would gradually increase the RMD age to 75 over a 10-year period. The EARN Act would eliminate the graded schedule and increase the RMD age to 75 from 72 beginning in 2032.
4. Deadline for plan amendments to tax qualified plans is extended: The IRS extended the deadline for adopting plan amendments to comply with the SECURE Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act to 2025 from 2022. However, the amendment deadline for COVID-19 relief provisions in the CARES Act has not been extended: coronavirus-related distributions, increase in the plan loan cap and extension of loan repayment periods. Therefore, plan sponsors should proceed with amendments for these provisions based on the original deadline which ends the last day of the first plan year beginning in January 2022.
5. Catch-up contributions to employer-sponsored plans: Under current law, catch-up contributions are pre-tax unless the employer-sponsored retirement plan allows them to be after-tax Roth contributions. The EARN Act would require catch-up contributions to employer-sponsored qualified retirement plans to be designated Roth contributions for taxable years beginning in 2024. Although this provision is also included in SECURE 2.0, the effective date would be for taxable years beginning in 2023.