The SECURE Act 2.0 Brings Retirement Changes: What You Need to Know

As life expectancy in the US increases, more people are relying on their savings and investments to support themselves in retirement. In recent years, though, it’s been reported that individuals aren’t saving enough to achieve this goal. 

Although there are many possible explanations for this lack of savings – rising inflation, lack of financial education and low wages, to name a few – a primary reason why many individuals find it difficult to save for retirement is due to lack of access to employER-sponsored retirement plans. 

It’s estimated that, without action, the rate of seniors living in poverty may increase by 25% by 2045

To counteract this risk, the government passed the SECURE Act. 

What is the SECURE Act? 

The SECURE Act – which stands for the Setting Every Community Up for Retirement Enhancement (SECURE) Act – was created with the goal of helping employEEs save more for retirement and achieve greater financial security in later years. By achieving this goal, legislators aim to promote overall economic stability. 

When was the SECURE Act passed? 

The SECURE Act was passed in 2019 and remains in effect. 

What is the SECURE Act 2.0? 

In 2022, the SECURE Act 2.0 was introduced, which proposed even more changes to improve retirement security. 

This legislation is one of the most significant pension reform bills in recent history. 

What are the SECURE Act 2.0 retirement changes? 

Together with the SECURE Act, the SECURE 2.0 Act is intended to improve retirement security. The 2.0 legislation aims to give individuals: 

  1. More time to save for retirement
  2. Make it easier for small businesses to offer retirement plans
  3. Provide new options for managing student loan debt

What does the SECURE Act mean for employERs?

There are several ways this legislation may affect employERs, specifically within HR and benefits management over the next several years. 

Specifically, changes within the legislation include

Automatic enrollment

Beginning in 2025, employERs with eleven or more workers will be required to automatically enroll employEEs in their retirement plan. Employees may choose to opt-out of the automatic deferral. 

Automatic escalation

Beginning in 2025, contribution percentages must automatically increase by one percent each plan year until the plan is at least 10 percent and no more than 15 percent of eligible wages. Exceptions apply. 

Catch-up contributions increased

In 2023, participants age 50 and older can contribute an extra $7,500 per year annually. 

Optional Roth treatment of employER contributions

Effective immediately, employERs may amend their plans to permit employEEs to elect that employER matching and non-elective contributions be made as after-tax contributions, as long as they’re 100 percent vested when contributed. 

Expanded eligibility for long-term, part-time employEEs

Beginning in 2025, employEEs who work long-term, part-time for two years must be allowed to participate in their company’s retirement plan. This excludes employEEs who participate in collective bargaining plans or non-resident aliens. 

Treatment of student loan payments for matching contributions

Beginning in 2024, employERs will be able to make contributions to their company retirement plan on behalf of employEEs who are paying student loans instead of saving for retirement. 

Emergency savings accounts linked to retirement plans

Beginning in 2024, retirement plans may offer linked “emergency saving accounts” that allow non-highly compensated employEEs to make after-tax contributions to a savings account within the retirement plan. 

Saver’s match

Beginning in 2017, lower-income employEEs will be eligible to receive a federal matching contribution that would be deposited into their retirement savings account. 

Immediate incentives for participation

For plan years beginning after 2022, employERs may offer modest financial incentives – such as gift cards – to encourage participation in retirement savings plans. 

Expanded credit for retirement plan administrative costs

EmployERs with up to 50 employEEs may be eligible for a three-year start-up tax credit up to 100 percent of qualified start-up costs. An additional credit of $1,000 per employEE for eligible employER contributions may apply to employERs with up to 50 employEEs. This increase was effective January 1, 2023. 

The SECURE Act 2.0 of 2022: Next Steps for Compliance

Taking advantage of the law’s incentives could benefit employEEs and help with efforts towards recruitment, retention and overall morale. Here are a few steps to help you prepare for how it may affect your business: 

  1. Increase administrative responsibilities. EmployERs may need to update qualified retirement plans and administrative processes to comply with new regulations.
  2. Consult with plan administrators. Work with your administrators or third party providers to ensure your plans are compliant with new regulations. This may mean considering new retirement plan options.  
  3. Educate your workforce. With changes to contributions, it may be beneficial to offer learning opportunities to educate employEEs on how payroll may be affected to reflect new regulations, making sure to callout opt-out options for those who do not wish to participate in things like automatic enrollment. 
  4. Speak to your software provider. If you use an integrated workforce management or ERP system to manage your HR, benefits and payroll activities, ensure there is a plan in place for feature enhancements to cover new regulation requirements, such as automatic enrollment. 
  5. Stay informed. Keep up to date with developments related to the SECURE Act 2.0 to fully understand how legislation may impact your business. Be sure to consult your own legal counsel and financial advisors. 

As always, legislation is subject to change, and it is important to ensure you’re able to adapt if needed. 

Interested in more compliance news? Check out TEAM Software’s related articles: 

Please note, although our solutions help give you the information you need to show you’re in compliance with the latest regulatory needs based on where your business is based, TEAM Software doesn’t enforce compliance and we can’t offer you legal advice. Please consult with your own financial and legal teams for specific compliance needs relative to your business.