SECURE Act 2.0: What Employers and Plan Participants Need to Know

Some big changes to employer retirement plans are on the way as part of the $1.7 trillion omnibus appropriations bill that passed Congress just before the holiday break. Dubbed SECURE 2.0, the legislative package goes to President Biden’s desk with overwhelming bipartisan support.

The new legislation builds on and extends various provisions of the 2019 SECURE Act which, as some may recall, gave small businesses the ability to participate in pooled employer plans (PEPs). Working much like a “group 401(k),” PEPs make it possible for unrelated employers to share the administrative costs of a plan that can be offered to each employer’s workers. Now, in addition, SECURE 2.0 offers some significant new provisions that are aimed at making it easier and more attractive for employees to participate:

  • Employers can make matching contributions to plans based on qualified student loan payments by employees. This provision aims to help those who have until now been making student loan payments instead of saving for retirement.
  • Requires automatic enrollment of employees in 401(k) or 403(b) plans, with payroll-deducted contributions of 3–10% of pay in the first year, rising by 1% each year until a minimum 10% threshold is reached. Businesses with fewer than 10 employees and companies in business for less than 3 years are exempt (and employees can opt-out, but research shows that few do).
  • Expands the Saver’s Tax Credit for qualified lower-income individuals (in 2023, maximum AGI of $73,000 if filing jointly) to provide a tax credit equal to 50% of plan contributions with no reduction as income increases (this provision takes effect in 2027).
  • Catch-up contributions for participants ages 60–63 are increased from the current $6,500 to $10,000, starting in 2025 (levels for those 50–60 remain the same as currently). Also, all catch-up contributions are treated under Roth rules (as after-tax contributions) except for workers earning $145,000 or less.
  • RMDs start at age 73 in 2023, going up to age 75 in 2033.

Some provisions of the plan could cause a few temporary headaches for employers, however, and the chief one is a provision reducing the number of years required for part-time employees to become qualified to participate in a plan. The new legislation lowers the period from the current three years to two. However, the new law gives employers until January 1, 2024, to make the necessary changes. And on a more positive note, the package includes expansion of the startup cost credit for employers to include up to 100% of startup costs.

SECURE 2.0 had broad bipartisan support, with components of the bill having passed the House by a vote of 414–5, and relevant Senate committees unanimously advancing other major portions in June.

At Empyrion Wealth Management,  we work with clients to design, maintain, and improve strategies for retirement savings and other important financial goals. To learn more, click here to read our recent article, “Roth Conversions: This May Be a Good Time.”

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