Retirement industry group asks IRS to include SECURE 2.0, forfeiture rules in new Guidance Plan

The SPARK Institute is urging the Treasury and the IRS to include the following recommendations in the upcoming Priority Guidance Plan, as mentioned in the letter:

Saver’s Match

Beginning in 2027, the longstanding Saver’s Credit for lower-income individuals will be converted into the Saver’s Match. “While Saver’s Match contributions will not actually be paid to retirement plans and IRAs until 2028, we are urging Treasury and IRS to prioritize guidance on this unprecedented program now because it will require new levels of coordination among individual taxpayers, plans sponsors, retirement plan recordkeepers, trustees, custodians, insurers, tax preparers, and the federal government,” read the letter.

SPARK’s key recommendation includes that “Treasury and IRS develop an information sharing program between the government and private sector in order to reduce errors … SPARK believes that guidance incorporating these recommendations would reduce administrative costs, maximize public benefits, and limit undue burdens on businesses of all sizes.”

SECURE 2.0 required that, beginning after December 31, 2023, individuals with wages over $145,000 in the prior year may only make catch-up contributions on a Roth basis. The IRS then provided a two-year administrative transition period.

In addition, SPARK is requesting final guidance on requirements for auto-enrollment for new 401(k) and 403(b) plans, imposing new participation requirements for long-term, part-time employees, and changes to the required minimum distribution rules.

Finalize ERISA forfeiture regulations

In 2023, the IRS enacted a proposal that would generally require that plan administrators use retirement plan forfeitures no later than 12 months after the close of the plan year in which the forfeitures are incurred “to pay plan administrative expenses … to reduce employer contributions under the plan or … to increase benefits in other participants’ accounts in accordance with plan terms,” read the letter.

Since then, there have been dozens of ERISA lawsuits filed against plan sponsors who have adopted plan terms that are “wholly consistent with the IRS’s proposed regulations,” read the letter.
“In each of these claims, the plaintiffs are alleging that plan fiduciaries breached their duties under ERISA by using plan forfeitures to reduce employer contributions, instead of paying plan expenses.
Although none of these lawsuits “have yielded a final judgment against a plan sponsor, they have survived motions to dismiss and at least one plan sponsor has already agreed to a settlement,” read the letter.

The SPARK Institute is urging the Treasury and IRS to “finalize forfeiture regulations that are consistent with the proposal as soon as possible in order to clarify that defined contribution retirement plans are permitted to provide that plan forfeitures may be used for plan expenses, to reduce employer contributions, or increase benefits,” read the letter.