AICPA suggests changes in SECURE 2.0 proposed regulations

The American Institute of CPAs is asking the Treasury Department and the Internal Revenue Service for greater clarity on their proposed regulations for the SECURE 2.0 Act of 2022.

SECURE 2.0, like the original SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 includes a wide range of provisions related to retirement planning and tax-favored 401(k) and 403(b) plans. SECURE 2.0 generally requires newly created 401(k) and 403(b) plans to automatically enroll eligible employees starting with the 2025 plan year. 

The Treasury and the IRS issued the proposed regulations on auto enrollment and Roth IRA catchup contributions in January during the waning days of the Biden administration. Unless an employee opts out, a plan is required to automatically enroll the employee at an initial contribution rate of at least 3% of their pay and automatically increase that contribution rate by 1% each year until it reaches at least 10% of an employee’s pay. 

The requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, which is the date when the SECURE 2.0 Act became law, but there are some exceptions for new and small businesses, church plans, and governmental plans.

Based on the recent proposed regulations, the AICPA made several recommendations in its comment letter, including that the Treasury and the IRS issue final regulations clarifying that the investment requirements for trustee-directed plans in Section 1.414A-1(c)(4) of the proposed regs would not apply to plans that don’t adopt participant direction of investment. 

In determining the employee count for small businesses, the AICPA recommended that the Treasury and the IRS issue final regulations stating that only employees of the plan sponsor are included in the count for purposes of determining status as a small business under Section 414A.

The AICPA also had a comment on the definition of “predecessor employer,” suggesting that the Treasury and the IRS issue final regulations that define the term by reference to Treas. Reg. Section 1.415(f)-1(c)(2) for purposes of Section 414A(c)(4)(A). 

“The purpose for our letter is to provide input to Treasury and the IRS in order to further clarify the rules and provide recommendations to help with the implementation of the auto-enrollment provision of the law,” said Kristin Esposito, AICPA director of tax policy and advocacy, in a statement Tuesday.