SECURE Act 2.0 Could Deliver a Major Overhaul to Retirement Savings Plans
April 14, 2022
At a glance
- The main takeaway: The Securing a Strong Retirement Act, also known as SECURE Act 2.0, could potentially lead to substantial changes to retirement savings and investment.
- Impact on your business: If passed, SECURE Act 2.0 would offer significant benefits to help employees save more and incentivizes employers to improve their retirement plans.
- Next steps: SECURE Act 2.0 is likely to pass and when it does, it’s important to discuss with your advisor how to modify your current plans to meet the new requirements. Aprio’s Retirement Plan Services team can help you navigate and manage all aspects of your retirement plans.
Schedule a complimentary plan review with our Retirement Plan Services team today.
The full story:
In the midst of a retirement crisis, a new bill proposed by the Ways and Means Committee aims to change the way we save for retirement by making the process more attainable. The Securing a Strong Retirement Act, nicknamed SECURE Act 2.0, builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act that passed in December of 2019.
However, the core of SECURE Act 2.0 is to make it easier for individuals to save by expanding coverage, improving rules and lowering costs for employers. Last week, the bill passed the House of Representatives with bipartisan support by a vote of 414 to 5. As SECURE Act 2.0 continues to make its way through Congress, we have highlighted the top provisions of the bill as it is currently proposed:
- Expanding automatic enrollment in retirement plans
SECURE Act 2.0 would require employer-sponsored 401(k) and 403(b) plans to automatically enroll employees upon becoming eligible, while also offering employees the choice to opt-out. The minimum automatic enrollment rate begins at 3% and is increased by 1% each year until it caps out at 10%. While this applies to plan years beginning after December 31, 2023, businesses with fewer than 10 employees, new businesses operating for fewer than three years and retirement plans for churches and government agencies are exempt from automatic enrollment.
- Matching contributions for student loan payments
Employers can make contributions to an employee’s 401(k), 403(b), SIMPLE IRAs or 457(b) plans matching the employee’s qualified student loan payment for higher education. This voluntary program allows employees to prioritize their student loan debt while simultaneously saving for retirement regardless of whether they contribute to the plan. Under SECURE Act 2.0, contributions will apply to plan years beginning after December 31, 2022.
- Boost to the retirement catch-up limit
Employees aged 50 and over are eligible to make catch-up contributions to 401(k) and 403(b) plans. Currently, the catch-up contribution limit is $6,500 and would increase to $10,000 for individuals aged 62, 63 and 64 applying to tax years beginning after December 31, 2023. In the case of SIMPLE plans, catch-up contributions would increase to $5,000 from the present limit of $3,000 with both limits indexed for inflation. In addition, SECURE Act 2.0 limits IRA catch-up contributions to $1,000 for individuals 50 years old and over and be indexed for inflation.
The SECURE Act 2.0 has several other noteworthy provisions that, if passed, would greatly benefit employees and employers:
- Small businesses with up to 100 employees can receive an increase in start-up credit based on the percentage of employer contributions made on behalf of each employee.
- A new tax credit for eligible small businesses for each non-highly compensated employee married to a member of the military that becomes a participate in a defined contribution plan.
- Enhancement of the saver’s credit and allowing the credit to be made available to eligible taxpayers with higher levels of adjusted gross income.
- Raising the age of which an individual must begin taking the required minimum distributions from retirement plans. SECURE Act 2.0 will raise the age to 73 on January 1, 2023, and over the next decade increase the age to 75
- Part-time employees will be eligible to participate in 401(k) plans if they have completed at least 500 hours of service a year for two consecutive years, previously a three-year rule.
- An online database that serves as a national lost-and-found set up and maintained by the Department of Labor to help employees and employers pay out benefits from old 401(k) plans.
- Expansion of the Employee Plans Compliance Resolution System (EPCRS) to allow more types of errors to be self-corrected and exempt certain failures to make the required minimum distributions from excise tax.
- First responders are eligible to exclude gross income service-connected disability pension payments after reaching the required retirement age.
- SIMPLE IRAs will be able to accept Roth contributions and allow employers to offer employees the ability to treat employee and employer SEP contributions as Roth.
- Certain catch-up contributions to qualified retirement plans would be subject to Roth tax treatment.
- Defined contribution plans allowed to provide participants with the option to receive matching contributions on a Roth basis.
The bottom line
For one reason or another, Americans are struggling to adequately save for retirement. While we are far from perfect retirement reform, SECURE Act 2.0 offers significant benefits for employees and employers to save more money. SECURE Act 2.0 is likely to pass and when it does, it’s important to schedule time with your advisor to discuss how to adapt your plans to remain in compliance. Aprio’s Retirement Plan Services team can help you navigate and manage all aspects of your retirement plans.
Click here to schedule a complimentary call or meeting with Michael Saulnier to discuss your retirement plan.