SECURE 2.0 Act – Section 350. Safe Harbor for Corrections of Employee Elective Deferral Failures
The SECURE 2.0 Act (SECURE 2.0) contains a provision that provides guidance on the correction method relating to automatic enrollment and automatic escalation failures.
Under the current law, employers that adopt a retirement plan with automatic enrollment and automatic escalation features could be subject to significant penalties resulting from failures to administer those provisions correctly.
For example, these errors could include things such as improperly excluding an eligible employee from being automatically enrolled or having their deferral percentage increased via automatic escalation.
The IRS has issued safe harbor guidance on the correction of such failures, which is set to expire on December 31, 2023. That guidance permits correction if notice is given to the affected employee, correct deferrals commence within certain specified time periods, and the employer provides the employee with any matching contributions that would have been made if the failure had not occurred.
Section 350 of SECURE 2.0 eases concerns surround the expiration of the safe harbor guidance mentioned above by allowing a grace period to correct reasonable errors in administering automatic enrollment and automatic escalation features without penalty.
Specifically, errors must be corrected prior to 9 ½ months after the end of the Plan Year when the error was made, though the time to correct the error is reduced if the employee notifies the employer of the error.
This provision becomes effective for errors made after December 31, 2023.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.