With so much change continuing to be in the air, it seems all too rare to be able take the opportunity to step back to broadly reflect on all of these moving pieces. The changes from CARES and SECURE, for example, are just working their way through the system, and now we expect to see SECURE 2.0 bring a number of further dramatic changes to the market. 2.0 is fascinating in many ways, especially given that right now it is really just a mashing together of three different legislative efforts- plus some.
That reflection always seems to circle back around to the impact of the finer details of these changes. Yes, there are substantive policy initiatives driving them, yet so much of their effectiveness and broader impact seem to be wrapped up in the-sometimes-maddening details of what is being passed.
A case in point is the anticipated changes in 2.0 which will open up pooled employer plans to 403(b) plans. Professionals in this area of the practice, we all know that the current PEP rules otherwise provided under Code Section 413(e) are unavailable to 403(b) plans,
Well, Congress is taking a well crafted, though pretty unusual, approach to the manner in which it has chosen to accomplish this feat. It seems to be a recognition of the impact of the details that associate to these sorts of dramatic changes. What is noteworthy is that 403(b) PEPs are going to be enabled through changes to 403(b), and not by simply including them in the definitional sections of 413(e), and through changes to ERISA’s PEP language under Sections 3(43) and 3(44). This is critically important because had Congress chosen to simply amend 413(e), it would have opened a Pandora’s box of details which would have demanded clumsy (and perhaps extensive) regulatory fixes.
Importantly, the statutory language does not just recognize the ability of 403(b) plans to be part of PEPs. It is part of a larger recognition of the vast array of “aggregation” arrangements in which 403(b) plans of “unrelated” sponsors have engaged over the years, which may driven by things like local statues, civic organizations or by a variety of plan designs. This includes the 403(b) MEP: though the Tax Code’s MEP rules have not applied to 403(b) plans, ERISA Section 210 DOES apply, and there is a growing body of them in the market. What 2.0 language does do is that it confirms that the 403(b) status of those plans participating in the variety of aggregation arrangements is not jeopardized by participating in them.
In addition to all of this, that same section of the 2.0 also fixes an annoying 5500 filing problem related to those 403(b) MEPs; grants “one bad apple” relief to those 403(b) arrangements which satisfy rules similar to the PEP rules of Section 413(e)(2); and provides a few other unique features will be important to “unpack.”
So much for reflection, I guess. An important takeaway for 2.0 is that there will be an awful lot of this sort of unpacking which will need to be done for quite a few of the changes (like “403(b) eligible” CITs) which will be brought into play.