SECURE Act 2.0 - What it Means For You

Key SECURE Act 2.0 Changes Small Business Employers Need to Know

Required Minimum Distributions

Increased age of required minimum distributions (RMDs) from 72 to 73 effective starting in 2023. The age requirement for RMDs will rise to 75 at the beginning of 2033. The excise tax penalty for missing RMDs has been decreased from 50% to 25%. Required minimum distributions were already not required for Roth IRA accounts, however, required minimum distribution rules did apply to Roth 401(k) accounts. Effective in 2024, there will no longer be a required minimum distribution for Roth 401(k)’s.

Incentivized Participation

Increased ability for employers to incentivize employees to contribute to retirement plans beyond just matching contributions. Effective in 2023, employers can now include modest financial incentives such as gift cards to promote participation.

Increased Catch-Up Contribution Limits Plus New Age Ranges to Track

Effective in 2023, catch-up contributions limits have been increased for 401(k), 403(b), and IRAs for workers aged 50 and older.

Effective in 2023, Optional Roth contribution preference where an employer can amend their workplace retirement plans to permit employees to elect employer matching and non-elective contributions made as Roth (after-tax) contributions. These contributions will be considered taxable income in the year of the contribution. (Retirement plan recordkeepers are still waiting for more guidance from the government on how to administer the feature.)

1. The Catch-Up Contribution limit for employees who turn 50 in 2023 is raised from $6,500 to $7,500.
2. Beginning after December 31, 2024 a new Catch-Up category has been created. Contribution limits will be raised for ages 60-63. It will be the greater of $10,000 or 50% over the indexed catch-up rate for people age 50 – 60. Contributions of 50% above the normal age 50 rate would be allowed. (indexed for inflation).
3. New catch-up rules for those earning over $145,000
   After 2023, all catch-up contributions for participants earning over $145,000 annually must be made on a Roth (after-tax) basis.

New Employee Automatic Enrollment

Reversed automatic enrollment in 401(k) plans to start in 2025, where automatic employee enrollment in workplace retirement plans becomes required of most major employers. The enrollment rate in these retirement plans will be required between 3% and 10% of eligible wages. Employees must be allowed to opt-out or withdraw automatic contributions within no more than 90 days of their first contribution. Certain plans are exempt from this rule. This change applies to most 401(k) plans, but there are some that are exempt from these new rules. This does not cover small companies with 10 or fewer employees, new companies in business for less than three years or church and government agencies.

Automatic Contribution Escalation

Automatic escalation, starting in 2025, where the contribution percentages of new employee retirement plans made after the conclusion of 2022 must increase by 1% every year after the completion of a year of service until the contribution is at least 10%.

Expanded Retirement Plan Eligibility for Part-Time Workers

Effective for 2025 and later plan years, SECURE 2.0 shortens the wait for long-term, part-time employees from three years to two, in addition to changing the rules in other ways. If an employee works 500 or more hours in two consecutive years, the plan administrator must allow the employee to make elective deferrals in the following plan year.

• ERISA-covered 403(b) plans are now included in this expanded coverage.
• SECURE 2.0 amends the Internal Revenue Code and adds the long-term, part-time provisions to ERISA, making this an enforceable right.
• Pre-2021 service is disregarded for 401(k) plan vesting purposes, effective as if included in SECURE 1.0.

Student Loan Repayment Assistance

Beginning in 2024, employers will have the option to match student loan payments as if they were payments to a qualified retirement plan. Under the new law, loan payments will be treated as elective deferrals just like your contributions, triggering SECURE Act 2.0 employer-matching contribution policies. This allows eligible employees of employers who choose to offer this match, to make saving for retirement a priority and not miss out on matching contributions for their retirement plans.

New Emergency Pull for 401(k)

The new SECURE 2.0 retirement law contains two main provisions related to emergency savings, both of which are optional for plan sponsors starting in 2024.

The first would permit the creation of a “sidecar” account tied to a participant’s retirement account. This account would be capped at $2,500, or a smaller amount set by the sponsor.

• Plans and traditional IRAs may permit one withdrawal per calendar year up to $1,000 for an unforeseeable or immediate financial need relating to necessary personal or family emergency expenses.
• This emergency personal expense distribution is exempted from the IRS 10% premature distribution penalty tax.
• The distribution may be repaid within 3 years and a subsequent distribution cannot be made until the repayment is completed.
• The plan administrator may rely on a certification by an employee seeking an emergency withdrawal unless the plan administrator has actual knowledge to the contrary.

New Employee Emergency Retirement Savings Accounts

Linked emergency savings accounts to retirement plans will start in 2024. Retirement plans will have the option to offer linked savings accounts, where non-highly compensated employees can make after-tax contributions to retirement savings account up to $2,500. Employees will have the option to make up to 4 withdrawals per plan year from the savings account penalty-free without the need to show a qualifying emergency cause.

Expanded Error Corrections

An expansion on the Employee Plans Compliance Resolution System (“EPCRS”) where more types of errors can be corrected internally. This also includes new rules for correcting overpayments and exempts certain failures to make required minimum distributions from excise tax.

Increased Employer Credits for Retirement Plan Administrative Costs

Employers now can receive a start-up tax credit of 100% percent on retirement plans for up to 50 employees. This is an increase from the previous numbers of 50% credit on less than 100 employees. Additional credits of up to $1,000 per employee may apply to employers with up to 50 employees.

Self-Certification of Hardship Requests

SECURE 2.0 also allows participants to self-attest that they meet IRS hardship criteria for the purposes of larger hardship withdrawals. Cimini explains that participants previously had to provide documentation of their hardship, such as an eviction notice, to claim a hardship withdrawal. Now they can simply self-attest.

Pros and Cons of SECURE Act 2.0 for Small Business Owners

How Small Business Owners Can Handle SECURE Act 2.0

SECURE Act 2.0 has pushed select changes into law immediately, with the full extent of changes scheduled to be rolled out in the coming years. As a small business owner, the new provisions may require you to amend your existing retirement plan offerings in order to remain compliant and avoid penalties. Making sense of current and future new changes in the regulations can be time-consuming and confusing. Will your current recordkeeper keep up with the changing retirement plans landscape? You need a plan provider who has this new info covered and can track who is eligible for what.

If your current benefits plan provider isn’t helping you keep up with new changes, The Benefit Companies through Connect & Simplify can help. Let our fully integrated business administration software and employee benefits plan specialists help you simplify the new incoming retirement plan rules. We’ll help you take advantage of the new incentives for offering employee retirement plans and can even benchmark your existing plans to help take the risk out of your hands as an employer. Contact us for a consultation today!