Decoding the Alphabet Soup: What’s With All the Acronyms | Part 6
As if we didn’t have enough acronyms already, the SECURE Act and SECURE 2.0 brought us a bunch of new ones…apart from the fact that SECURE is an acronym itself. Speaking of pieces of legislation, we’ve always been "impressed" at how far Congress can contort itself to find names that fit into acronyms. Though not part of the retirement plan landscape, did you know that the USA PATRIOT Act is an acronym? Yep, stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism. Nope, we didn’t know that either until writing this post. Probably took longer to come up with the name than the rest of the legislation.
SECURE
What It Means: Setting Every Community Up for Retirement Enhancement
How To Pronounce It: Secure
What It Is: For starters, it’s not grammatically correct, but we won’t go down that path. The Congressional Acronym Developers (CADs – we just made that up) must have had writer’s block since they used this one twice for the SECURE Act (OG SECURE) and SECURE 2.0 (S2). The second iteration is actually called the Securing a Strong Retirement Act of 2022 even though it is referred to as SECURE 2.0, probably because SSRA is already taken (Social Security Retirement Age).
The rest of the items in this post come from those two pieces of legislation along with these:
- Long-Term, Part-Time (LTPT) employees;
- Pooled Employer Plans (PEPs); and
- Delayed Required Minimum Distributions (RMDs).
Want to know more about OG SECURE and S2, check out our posts here and here, respectively.
PLESA
What It Means: Pension-linked Emergency Savings Account
How To Pronounce It: Plehsa or Pleesa, we’ve heard it both ways
What It Is: This is one those good ideas that has been, in our opinion, poorly executed. In short, this allows participants to earmark some of their 401(k) deferrals as emergency savings. Contributions, which are capped at $2,500, go in as Roth deferrals and are accessible at any time. Unfortunately, there are a bunch of rules and restrictions along for the ride that make these challenging to operate properly. Check out this post for more on that as well as an alternative that has most of the same advantages without all the baggage.
QBAD
What It Means: Qualified Birth or Adoption Distribution
How To Pronounce It: Q-Bad
What It Is: Michael Jackson suddenly comes to mind, “Because QBAD, QBAD, you know it, QBAD.” Sorry (not sorry) for that earworm. The name pretty well tells the story on this one. It allows new parents to take penalty-free distributions of up to $5,000 within one year of the birth or adoption of the new family member to cover associated expenses. Even though it is a distribution and not a loan, a participant who takes a QBAD also has the option to repay it within a certain period of time in order to get the money back into the plan.
QSLP
What It Means: Qualified Student Loan Payment match
How To Pronounce It: Q-Slip
What It Is: A little close to Q-tip but better than QSLPM. This new optional feature allows companies to treat payments that a participant makes on a Qualified Education Loan (QEL - defining an acronym with an acronym) as deferrals for purposes of calculating the matching contribution. This is another one of those “sounds good on paper” provisions. There are parameters as to which loans are QELs. The participant must make an annual certification as to the amount of payments made and other details, and they must be given until 3 months after the close of the year to provide this certification. That creates challenges with respect to employees who terminate mid-year. For plans subject to ADP/ACP testing, that 3-month timeframe is already beyond the deadline to avoid the excise tax on corrective distributions.
The IRS provided some guidance in Notice 2024-63, but there are still a number of open questions. And as if this wasn’t already complicated enough, that guidance established 2 new variations in how to run the ADP/ACP test each year. By our count, that brings us to 9 different variations when combining the new ones with the existing ones. And as much as running an ADP test 9 different ways may be job security for those of us in the compliance business, we’re pretty sure no one is calling that part a win.
QLAC
What It Means: Qualified Longevity Annuity Contract
How To Pronounce It: Q-Lac
What It Is: SECURE 2.0 didn’t create the QLAC, but it did simplify the funding rules. Like other annuities, QLACs provide a guaranteed stream of income to avoid running out of money later in one’s retirement years. One of the unique features, however, is that the amount a participant invests in a QLAC within a 401(k) plan is disregarded when it comes time to calculate that person’s required minimum distributions. S/he can set the income start date up to age 85. The lifetime maximum amount a participant can fund into a QLAC is $210,000.
And that brings to a close our second series on decoding the alphabet soup of retirement plan acronyms. Have no fear…this seems to be the gift that keeps on giving, so we are pretty confident we’ll have plenty more to kick off a new round before too long.
