The SECURE 2.0 Act of 2022 (SECURE 2.0) significantly changes the legal and administrative compliance landscape for U.S. retirement plans. Foley & Lardner LLP is authoring a series of articles that take a “deep dive” into key SECURE 2.0 provisions that will affect how employers structure and administer their 401(k) plans, pension plans, and other types of employer-sponsored retirement plans.

In our prior SECURE 2.0 articles, we have discussed student loans and 401(k) plan matching contributions, changes designed to simplify plan administration, changes to the minimum required distribution rules, and eligibility rules for part-time employees in 401(k) plans.  This month, we discuss additional changes that will help make plan administration simpler and other changes that are possible or that become effective under SECURE 2.0 after December 31, 2023.

Increase in Cash-Out Limit

Brief Overview.  SECURE 2.0 increases the current dollar limit on amounts that may be transferred from former participants’ qualified defined contribution plan accounts or from their accrued benefits in a qualified defined benefit plan to an individual rollover retirement account (IRRA) without consent, from US$5,000 to US$7,000.  This is effective for distributions made after December 31, 2023. 

Items to Think About.  Plan sponsors should review their plan documents to understand whether the current plan limit will automatically increase and if amendments to the plan or plan operations are necessary.  Plans are not required to implement the increase. 

Amendments to Increase Benefit Accruals Under a Plan for a Previous Plan Year are Now Allowed Until the Plan Sponsor’s Tax Return Due Date

Brief Overview.  The SECURE Act permits an employer to adopt a new qualified retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan becomes effective. Current law, however, provides that plan amendments to an existing qualified retirement plan must generally be adopted by the last day of the plan year in which the amendment is effective.  Thus, current law precludes a plan sponsor from adding plan provisions that may be beneficial to participants after the end of the plan year for with it is to be effective.  SECURE 2.0 amends this provision to allow discretionary amendments that increase participants’ benefits to be adopted after the end of the plan year as long as such amendments are adopted by the due date of the plan sponsor’s federal tax return next following that plan year.  This is effective for plan years beginning after December 31, 2023.

Item to Think About.  This change does not apply to increases in matching contributions to a 401(k) plan.

Age 50 Catch-up Contributions Must Be Roth for Certain Participants

Brief Overview.  Under current law, for participants over the age of 50, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis if permitted by the plan.  SECURE 2.0 provides that, if age 50 catch-up contributions are permitted under the plan, then the contributions must be made on a Roth basis for employees whose wages from the same employer (as defined for Social Security FICA tax purposes) were greater than US$145,000 (indexed for future tax years) in the prior tax year.  This is effective for taxable years beginning after December 31, 2023.

Items to Think About.  Plan sponsors will need to review and update their payroll procedures for employees whose wages will be greater than US$145,000 (as indexed) in 2023.  The catch-up contributions for affected participants must be allocated to a Roth source on the recordkeeper’s system. 

Safe Harbor for Corrections of Employee Elective Deferral Failures

Brief Overview.  Under current law, employers that adopt a retirement plan with automatic enrollment and automatic escalation features could be subject to significant penalties if even honest mistakes are made. The Internal Revenue Service previously issued guidance on the correction of failures relating to default enrollment of employees into retirement plans. This guidance includes a safe harbor, which was due to expire December 31, 2023, that 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.  SECURE 2.0 allows for a grace period to correct, without penalty, reasonable errors in administering these automatic enrollment and automatic escalation features. Errors must be corrected prior to the nine and a half months after the end of the plan year in which the mistakes were made. This provision is effective for errors after December 31, 2023.

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With Megan Messerly

PROGRAMMING NOTE: Morning Pulse won’t publish from Monday, Aug. 28, to Monday, Sept. 4. We’ll be back in your inbox on Tuesday, Sept. 5.

FLORIDA MEDICAID UNDER FIRE — Two consumer advocacy groups sued Florida’s Medicaid agency on Tuesday, claiming that tens of thousands of people have been kicked off the program without adequate explanation, Megan reports.

It’s the first major legal action targeting the massive Medicaid coverage losses sweeping the nation as states redetermine eligibility for more than 90 million people for the first time since the pandemic.

The lawsuit, filed by the National Health Law Program and the Florida Health Justice Project, focuses only on Florida — and, specifically, the roughly 182,000 people who the state has affirmatively determined to be ineligible for the program, meaning it doesn’t address the more than 225,000 people who’ve lost coverage for procedural reasons. But the issues raised in the complaint parallel those that other advocates have raised in Florida and elsewhere.

“This is the first lawsuit related to the Medicaid unwind,” Joan Alker, executive director and co-founder of Georgetown University’s Center for Children and Families, told Megan. “I’m guessing it won’t be the last.”

The details: The class action lawsuit, filed in federal court on behalf of a 25-year-old mother, her 2-year-old child and another 1-year-old child, claims that Florida is failing to appropriately explain to people why they have been determined ineligible for Medicaid in violation of the U.S. Constitution and federal law. Attorneys argue that confusing notices sent by the state have left people unable to understand why they’ve lost coverage, determine whether that decision was correct and either appeal the decision or seek other health insurance.

“The purpose of a notice is to make really clear what the state’s doing and why so that an enrollee can raise their hand and say, ‘Hey, wait a minute, that’s not right. I’m actually eligible, and here’s why,’” said Sarah Grusin, a senior attorney with the National Health Law Program. “Without a clear explanation, that safety net is gone.”

The response: Mallory McManus, deputy chief of staff for the Florida Department of Children and Families, said the state cannot comment on pending litigation. However, she said the agency believes its letters to beneficiaries are legally sufficient and noted that CMS approved the state’s redetermination plan.

“There are multiple steps in the eligibility determination process, and the final letter is just one of multiple communications from the department,” McManus said.

In response to the lawsuit, federal health officials continued to urge states to take up federal flexibilities to keep people covered. HHS spokesperson Kamara Jones said the department “will not hesitate to hold states accountable that fail to follow federal requirements.”

WELCOME TO WEDNESDAY PULSE. Eggo just released a “brunch in a jar” — waffle and syrup-flavored liqueur with a “hint of smoky bacon.” We’re not sure how we feel about it, but we’re intrigued.

Send us your tips, feedback and scoops to [email protected] or [email protected]. Follow along @_BenLeonard_ and @ChelseaCirruzzo.

TODAY ON OUR PULSE CHECK PODCAST, your host Chelsea talks with POLITICO’s FDA reporter, Lauren Gardner, who explains why some consumer advocates are calling for the FDA to update standards for prescription drug marketing on social media where the line between personal endorsement and sponsored content can be blurred — and the challenge that presents for the FDA.

FDA’S POWER PITCH TO CONGRESS — FDA Commissioner Robert Califf called for Congress on Tuesday to deliver his agency more power to tackle drug shortages, POLITICO’s Lauren Gardner reports.

The domestic generic drug industry is a victim of its own success, with product prices too low to sustain quality manufacturing and distribution, Califf said during a webinar hosted by the Alliance for a Stronger FDA, which advocates for agency appropriations.

The FDA can’t address underlying market conditions, he said, but it can help avert supply-chain issues if manufacturers let it know about problems. The FDA said it helped prevent 222 drug shortages in 2022.

“We’re plugging over 200 holes a year now on the drug side, and I don’t think that’s good for society,” Califf said, calling shortages a national security issue.

Califf also called on lawmakers to direct more money toward the FDA’s new authority to oversee cosmetic products, power that Congress granted the agency in late 2022.

View from Congress: House Energy and Commerce Chair Cathy McMorris Rodgers (R-Wash.) has released a discussion draft on tackling drug shortages. It includes allowing the FDA to speed preapproval inspections for new sterile manufacturing facilities that could quickly begin making new products following a supply-chain disruption and requiring the agency to use existing reporting mandate authorities.

Legislation also passed out of the Senate HELP Committee last month that would mandate drug manufacturers notify the FDA about potential drug shortages.

FDA SHIPS AMAZON, WALMART WARNINGS — The FDA has issued six warning letters, including to retail giants Amazon and Walmart, for selling unapproved products online that target a skin condition common in children, Lauren reports.

The details: The FDA wants a number of products labeled as a treatment for molluscum contagiosum, a viral skin infection that causes small, itchy bumps on the skin, taken off the market.

The warnings, posted Tuesday to the agency’s website, require the companies to respond within 15 days with evidence that they are no longer selling the products or that their sale doesn’t violate FDA rules. The FDA says noncompliance could prompt the agency to take further action.

No over-the-counter products have been approved to manage the condition, though the FDA in July endorsed Ycanth, the first doctor-administered topical treatment for molluscum.

Walmart spokesperson Tricia Moriarty said the company “promptly” removed the product from its third-party marketplace site after receiving the FDA notification. Amazon didn’t respond to a request for comment.

MORE FUNDING FOR MONOCLONAL ANTIBODIES — On Tuesday, the Biden administration awarded $1.4 billion to companies working on new Covid-19 prevention therapies, with some clinical trials expected to begin this fall.

Background: The grants are part of HHS’ $5 billion Project NextGen, launched in May and led by the Biomedical Advanced Research and Development Authority, or BARDA, to accelerate the development of vaccines and treatments against Covid-19. A particular focus is on vaccines that provide longer protection, mucosal vaccines and monoclonal antibodies that also protect against new variants.

Among the awards is $326 million to Regeneron to develop new monoclonal antibodies for Covid protection. The company is responsible for previous iterations of the treatment, which are designed to block the virus’ entry into human cells, but new mutations of the virus have rendered the therapy largely ineffective.

The latest clinical trials for monoclonal antibodies are expected to begin this fall, Dawn O’Connell, HHS’ assistant secretary for preparedness and response, told reporters.

What’s next: It’s still unclear when the therapy might become available — and whether the government will purchase it as it did in the past or make it available on the commercial market.

The remainder of the $5 billion investment in Project NextGen will be doled out later this year, officials said.

PATIENT ADVOCACY INDUSTRY TIES — Patient advocacy organizations often have ties to the medical device and pharmaceutical industries, according to a new research letter published in JAMA Internal Medicine.

Yale researchers examined the 50 patient advocacy organizations with the highest revenue as of mid-2022 and found that three-quarters had board members, senior staff or executives with current or previous ties to the industries. About 10 percent of board members and executives had such links.

“Close leadership ties of PAOs with industry raise questions about industry’s influence on these organizations’ patient education, policy recommendations, and treatment guidelines,” the researchers wrote.

Spokespeople for several industry trade groups didn’t respond to requests for comment.

The Congressional Budget Office unveiled its 2023 panel of health advisers, who offer advice in crafting the agency’s cost estimates.

STAT reports on Kellogg’s battle against nutrition labels in Mexico, which your host had recently spotted there, were much more brash than U.S. labels.

Healthcare Dive reports on Epic and Microsoft’s partnership on artificial intelligence.

Modern Healthcare reports on hospitals facing more scrutiny from states on charity care.

PHARMA GIANTS PAY MILLIONS — Two generic drug giants agreed Monday to settle long-running criminal price-fixing charges with the Justice Department, including the unusual move to sell off the drugs involved, POLITICO’s Josh Sisco reports.

The U.S. arms of Israel-based Teva and India-based Glenmark will pay $225 million and $30 million, respectively, according to court filings. The companies agreed to enter into deferred prosecution agreements, a resolution in which charges are suspended, but a company must admit wrongdoing. It can later face charges if it doesn’t follow the terms of the deal.

Teva will also donate $50 million in drugs to humanitarian organizations.

Inside the settlement: The two companies agreed to sell off their operations that make the cholesterol drug pravastatin.

Teva acknowledged fixing prices on pravastatin and clotrimazole, used for skin infections, and tobramycin, used to treat cystic fibrosis. Glenmark admitted to fixing pravastatin prices.

In a statement, Teva said the conduct involved a single employee between 2013 and 2015, and the company is pleased to resolve the case.

Glenmark said in a statement it had strengthened its compliance practices. “We will continue to conduct our business with the utmost transparency and integrity,” Sanjeev Krishan, president of Glenmark’s U.S. business, said.

Background: The settlements resolve a criminal probe of the generic pharmaceutical industry dating to 2014. Five other companies, including Novartis-owned Sandoz, have entered into deferred prosecution agreements and paid $426 million in criminal fines. A senior sales executive from Taro Pharmaceuticals is fighting price-fixing charges stemming from the same investigation.

While Teva was the last and largest of the generic drugmakers to face charges, myriad companies face civil claims in a variety of class-action lawsuits and cases brought by nearly every state attorney general in the country.

WELCOME TO TUESDAY PULSE. I’m obsessed with this video of the National Zoo’s panda Xiao Qi Ji celebrating his third birthday. The only bad news? All of the National Zoo’s pandas will head back to China before the end of this year. They’re on loan, after all!

Send your non-panda-related tips, scoops and feedback to [email protected] and [email protected] and follow along @_BenLeonard_ and @ChelseaCirruzzo.

TODAY ON OUR PULSE CHECK PODCAST, your host Ben talks with POLITICO’s Mia McCarthy about her reporting on the first locally transmitted malaria cases reported in the U.S. in 20 years — a mysterious reemergence that’s puzzling public health experts.

MEDICARE LAUNCHES MONTHLY PAY PLAN — CMS announced a new program Monday aimed at spreading out the costs older adults and people with disabilities will face at the pharmacy counter, POLITICO’s Robert King reports.

The agency released the first of two draft guidance documents introducing the voluntary Medicare Prescription Payment Plan set to start in 2025. It’s the latest effort by the Biden administration to rein in drug costs in Medicare and implement the Inflation Reduction Act.

A Medicare participant can opt into the program starting in 2025, and their out-of-pocket drug costs will be capped and spread out via monthly installments instead of one lump sum.

The initial guidance, open for comment for 30 days, lays out how Medicare Part D plans can set up the infrastructure for the program. The plans must still reimburse pharmacies for the full cost-sharing amount.

A second guidance document expected in early 2024 will offer information on how plans can modify their bids and on outreach and education of their members.

This program is part of a larger Part D redesign passed as part of the IRA. Earlier this year, CMS implemented a $35 monthly cap on insulin costs for beneficiaries, and the agency must announce the first drugs subject to price negotiation by Sept. 1.

What’s next: The agency will also implement a $2,000 out-of-pocket drug cost cap by 2025.

BACKTRACK ON VACCINE LAG — Just days after warning that pharmacies wouldn’t provide free Covid vaccines to people without health insurance until October, the Biden administration and retail pharmacies are trying to accelerate the timeline, POLITICO’s Adam Cancryn and David Lim report.

Biden health officials are attempting to finalize contracts that would allow pharmacies like CVS and Walgreens to offer the shot to uninsured Americans as early as mid-September when the government plans to make an updated version of the vaccine available to the broader public.

That’s roughly a month earlier than initially planned, said two people familiar with the contract negotiations granted anonymity to discuss ongoing talks. It’s an abrupt shift that came amid reports from POLITICO and others that Americans without health coverage would need to wait to get their no-cost shot at a pharmacy until mid-October.

The timing gap prompted concerns from public health experts, who fear that it would further complicate the fall vaccination campaign and discourage uninsured people from getting the shot, even as Covid hospitalizations rise again.

Americans without health coverage can still get the new vaccines at no cost from community health centers and individual providers as soon as they are rolled out, ensuring immediate access at those locations.

HEALTH MISINFO CONFUSES AMERICANS — At least 4 in 10 Americans say they’ve encountered specific health misinformation around vaccines, Covid-19, gun violence and birth control — and most say they weren’t sure whether it was true or false, according to a new KFF survey out this morning.

What they believe:

— A third of adults surveyed said the false claim that Covid causes thousands of sudden deaths in healthy people was “definitely” or “probably” true.

— A third of respondents said the false claim that birth control use made it harder to get pregnant after use was “definitely” or “probably” true.

— About 4 in 10 adults said the false claim that people who have firearms at home were less likely to be killed by a gun than those who didn’t own a gun was “definitely” or “probably” true.

What to watch: Ahead of a fall campaign to get people updated Covid shots, as well as respiratory syncytial disease and flu shots, the results are telling about what may be influencing consumer behaviors.

Where they get their news: People overwhelmingly said they trusted their own doctor’s recommendations — though a recent study found that doctors across medical disciplines participated in health misinformation during the pandemic. Two-thirds of the public also said they had a fair amount of trust in the CDC and FDA.

TV news is still among the most trusted for health information — and where it comes from matters: Less than half of respondents who say they’ve heard one of the false Covid vaccine claims believe it’s definitely or probably true, but that percentage ticked up for regular viewers of more conservative channels, including Newsmax and OANN.

Shauna Rust is now a senior policy adviser in the Office of the Administrator at HHS’ Health Resources and Services Administration. She previously was a professional staff member for Democrats on the Senate Veterans’ Affairs Committee.

Jeffrey A. Nesbit is joining HHS as assistant secretary for public affairs. He previously was the Social Security Administration’s deputy commissioner for communications.

Former Pennsylvania Republican congressman Ryan Costello has joined the Pharmaceutical Care Management Association.

POLITICO‘s Lauren Gardner reports on the approval of maternal RSV vaccines.

The Washington Post reports on lingering long covid symptoms two years later.

The Wall Street Journal reports on the boom of products being marketed toward people with anxiety.

CHICAGO - Recess and outdoor activities at Chicago Public Schools will be moved indoors this week and outdoor sports games and practices will be postponed Wednesday and Thursday because of the extreme heat forecasted to hit the city.

Temperatures are expected to hit the mid-90s with dangerous heat indexes soaring up to 115 degrees, the National Weather Service said in an excessive heat watch that runs from Wednesday morning through Thursday evening.

Mayor Brandon Johnson said the heat "poses a significant challenge to our public school system during this crucial first week of classes," and city agencies from the schools to police, fire, health and transportation are working together to prepare.

"My administration is mobilizing the full force of government in partnership with Chicago Public Schools, the Chicago Teachers Union and the Service Employees International Union Local 73 to better coordinate resources" this week, Johnson said in a statement.

In an email to all district families Tuesday, CPS CEO Pedro Martinez said all classrooms have air conditioning, and crews will work to fix any cooling problems that arise this week.

The start of the school year typically features breakdowns in air conditioning at schools across the city. The average CPS building is about 83 years old.

The concerns this year have been exacerbated by the district’s mid-August start to the school year, a change since the pandemic. CPS had long stuck with a post-Labor Day start even when suburban districts moved earlier into August. Chicago Teachers Union President Stacy Davis Gates criticized CPS on Monday for "haphazardly" introducing the new calendar given the heat that typically descends on Chicago this month.

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A CPS spokeswoman didn’t immediately say how many calls had come in about weak or broken AC the first two days of school. The district said Monday it hadn’t heard of any major problems.

Officials recommend students bring full water bottles to school the rest of this week and said teachers will deliver kids opportunities to refill them throughout the day. The city coordinated with United Way of Metro Chicago and World Business Chicago to secure 12,000 bottled water donations from private companies like PepsiCo, Fresh Market Place, Keurig and Jewel-Osco.

The district’s extreme heat plan also includes: Drawing shades in rooms to keep sunlight out; turning off overhead lights, computers and appliances when not in use; and moving classes from rooms exposed to sunlight to auditoriums or lower-level rooms.

School staffers are also working to create temporary committees to identify heat concerns this week and notify the district’s central office.

All outdoor sports games are postponed Wednesday and Thursday, officials announced, and all practices will either be canceled or moved indoors for those two days. Tickets already purchased for those games won’t be refunded, but they can be used for the rescheduled game. Sports can resume as scheduled on Friday unless otherwise updated.

The city’s Office of Emergency Management and Communications also advised Chicagoans to drink plenty of water, avoid spending time outside, keep electric lights off or turned down, minimize use of ovens and stoves, and wear light, loose and cotton clothing. People and pets shouldn’t be left in cars, even for a few minutes.

Signs of heat exhaustion include heavy sweating; cold, pale and clammy skin; a fast and weak pulse; nausea or vomiting; muscle cramps, tiredness or weakness; dizziness; and headache. A heat stroke would also include a body temperature above 103 degrees, hot or red skin and a fast and strong pulse. Officials advise calling 911 immediately at the sign of heat stroke.