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After months of build up, Congress passed the Consolidated Appropriations Act which included multiple new retirement plan provisions, collectively known as SECURE 2.0. This legislation strives to expand access to retirement plans, increase retirement savings, help American’s preserve income and streamline retirement plan rules.

What follows is a broad-brush overview of the key features and benefits of the Act. With over 92 different retirement plan provisions in all, we’ve opted to focus on those areas that are most applicable for employers, fiduciaries and plan administrators.

Effective immediately | 2023

Roth Employer Contributions

Employers may now choose to offer matching or nonelective contributions as Roth contributions. These contributions must be immediately 100% vested and and are taxable income to the employee in the year they are deposited into the plan.

De Minimis Incentives for Contributing to a Plan

Employers can now applaud good savings behavior by offering small non-retirement rewards to employees who participate in a 401(k) or 403(b) plan. In the retirement industry, this is casually referred to as the “gift card” provision.

Tax Credits for New Plans

For new retirement plans, companies with less than 50 employees can claim up to 100% of the start-up administration costs (max $5,000 per year) for the first three years the plan is in place. And these same employers can claim an additional $1,000 per employee (earning less than $100,000) for whom they make a matching contribution (max $50,000). Lesser deductions are also available for employers with 50 - 100 employees.

 

Available in 1 Year | Effective Date 2024

Roth-Required Catch-Up Contributions

Beginning in ‘24, participants over age 50 looking to max out retirement savings through catch-up contributions and who earn more than $145,000 must make Roth catch-up contributions. If an employee earns less than $145,000, they can choose either pre-tax or Roth contribution type. Reminder: Plans need to allow for Roth contributions in order for this to be available.

RMDs Not Required for Roth 401(k) and 403(b) Accounts

Retirement plan savings in designated Roth 401(k) and 403(b) accounts are no longer subject to RMD rules. This means employee accounts can continue growing tax-free in employer retirement plans past the traditional RMD age. Note, the Roth RMD rules applicable upon a participant’s death still apply.

Emergency Withdrawals

An employee may claim a personal emergency and access up to $1,000 from their retirement plan penalty-free. They can take one distribution per year and may repay it within three years. Only one such withdrawal is permitted per year, and no additional emergency withdrawals may be made within three years unless the participant has either repaid the prior withdrawal or has contributed at least an amount equal to the prior withdrawal.

Matching Student Loan Payments

For employees who are paying down student loans, employers will be able to apply the retirement plan’s matching formula to that repayment amount and deposit the match into the workplace retirement savings plan. This helps employees save for retirement while simultaneously reducing their student loan debt.

Increased Force-Out Limit

Under current law, employers may transfer former employees’ retirement accounts from a workplace retirement plan into an IRA if their balances are between $1,000 and $5,000. This section increases the upper limit from $5,000 to $7,000.

Automatic Portability for Terminated Employees

This provision permits the automatic rollover from old plan to new plan of forced-out accounts greater than $1,000. By allowing for automatic portability, it helps to reduce future missing participant issues, supports employers with clean participant data and helps employees by consolidating retirement savings accounts.

“Side Car” Emergency Savings Account

A new short-term, salary deferral emergency account solely for non-highly compensated employees. Contributions can be voluntary or employees can be automatically enrolled at a rate no greater than 3%. Employees can contribute up to $2,500 max in this Roth account and can access the funds tax and penalty-free. If the employer makes matching contributions under the plan, the employer must also match the amount contributed to the emergency savings account at the same rate as the match is made on typical employee deferrals. This match is contributed to the regular match account under the plan, not the emergency savings account.

 

Available in 2 Years | Effective Date 2025

Improved Retirement Plan Access for Part-Time Workers

Long-term, part-time employees who meet the eligibility requirements will be permitted to defer salary into the company’s retirement plan sooner. The current eligibility rules capture employees who work for three consecutives 12-month periods during each of which they have at least 500 hours of service. SECURE 2.0 lowers that threshold to two consecutive years. Employers are not required to match or make nonelective contributions. Also, it is important to have a good time tracking system in place for part-time employees as eligibility rules are retroactive. Effective January 1, 2025.

Automatic Enrollment and Escalation for New Retirement Plans

All new 401(k) and 403(b) plans must automatically enroll participants and auto-escalate savings. The employer will set the introductory deferral amount between 3 – 10% and the deferral amount increases by 1% up to 10 – 15% retirement savings per year.

Higher Catch-Ups for 60 - 63 Year-Old Employees

Employees between the 60 – 63 who are looking to maximize retirement savings will be allowed to increase their catch-up contribution to $10,000 in 401(k), 403(b) and governmental plans. As noted above, this catch-up must be a Roth contribution for those making $145,000 or more.

 

Available in 4 Years | Effective Date 2027

Enhance and Promote Savers Match

The Savers Match is designed to help low-to-moderate income workers save more for retirement through a Treasury matching program. To qualify for the match, employees must be 18 years or older and make up to $41,000; Phase-outs kick in thereafter, with the top end of the range equal to $71,000. Treasury will match 50% of their retirement plan contribution up to $2,000, for a max match of $1,000 annually. Effective 2027.

The original program, called the Saver’s Credit, is available now. For more information, visit IRS’ website.

 

Other Important Sections

Here are a few additional sections that we did not call out in detail but are important, especially if you are thinking about adjusting your retirement plan in the future:

• Age Increases for Requirement Minimum Distributions – Individuals can wait until age 73 (currently 72) to take a mandatory retirement savings withdrawal. Starting 2033, the RMD age is increased to 75 years old. Effective immediately.

• Military Spouses – Employers can claim up to a $500 retirement plan tax credit if they allow employees who are spouses of uniformed services to save through the company’s retirement plan. Effective immediately.

• Starter 401(k) Plans – If an employer does not offer a retirement plan, there is a new basic option. The plan only allows employee deferrals. Eligible employees are auto-enrolled and the maximum savings amount is $6,000. This is similar to State IRA plans. Effective 2024.

• Required Minimum Distribution Excise Tax Reduction – Currently, missing an RMD can be quite costly. New provisions reduce this pricey penalty from 50% to 25%, and if the failure is corrected in a timely manner, the penalty is reduced to 10%. Effective immediately.

• Retirement Lost and Found – A new national online searchable database to locate retirement accounts. Effective 2024 or thereabouts.

• Expand Self-Correction Program – Allows for easier plan corrections of operational and document errors through the Employee Plans Compliance Resolution System (“EPCRS”). Effective immediately.

• Self-Certification for Hardship Distribution – Employees may self-certify they are going through a hardship and need access to their retirement funds. Effective immediately.

• Penalty-Free Withdrawals for Victims of Domestic Abuse – Domestic abuse victims may withdraw the lesser of $10,000 or 50% of their retirement account penalty-free. Effective 2024.

• Penalty-Free Withdrawals for Terminal Illness – Terminally ill individuals may withdraw retirement funds without being subject to the 10% early distribution tax penalty. Effective immediately.

• Penalty-Free Withdrawals for Federally Declared Disasters – Permanent rules go into effect that allow up to $22,000 to be distributed from a retirement plan or IRA for affected individuals that are not subject to the 10% early distribution penalty. Similarly affected participants may also now take loans of $100,000 or 100% of their account balance. Retroactively effective to January 26, 2021.

• Cash Balance Calculations – New rules clarify and cap the maximum interest rate at 6% for variable credit rate plans, which will provide larger pay credits for older, longer service workers. Effective immediately.

We hope that you found this high-level summary of SECURE 2.0 helpful. As always, we are here to be a resource should any questions arise. Again, click to download our Summary Guide, detailing all of the above.

NOTE - This information is not all encompassing. Please consult us, your legal council or your other retirement plan service providers for more specific information. Or, click to read the 19-page Summary from the Senate Finance Committee about the SECURE Act 2.0 and other retirement plan provisions.