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Audit & Assurance, Employee Benefit Services

SECURE 2.0 Act: Changes to Retirement Savings Plans

At a Glance

Main Takeaway

The SECURE 2.0 Act (the Act), signed into law in December 2022, builds on the initial SECURE Act of 2019 and aims to make it easier for workers to save for retirement.

The SECURE 2.0 Act includes 90 provisions that affect employer-sponsored retirement plans, such as 401(k)s, pensions, and individual retirement accounts (IRAs). These changes are intended to improve retirement savings and provide Americans with the resources necessary for retirement security.

Next Step

If your business offers retirement savings plans, it is essential to understand the Act’s new regulations to ensure compliance and avoid potential penalties. Knowing the new retirement plan laws further enables you to offer the best plan options for your employees.

What is the SECURE 2.0 Act?

The SECURE 2.0 Act is legislation designed to address the growing retirement crisis in the United States. The Act seeks to improve retirement security for Americans by making it easier for workers to save for retirement and increase access to retirement plans. The Act includes both mandatory and optional provisions and aims to provide greater protection for retirees by requiring retirement plan providers to disclose more information about fees and investment performance.

The Act represents a significant step forward in addressing the retirement savings gap in the United States and helping employees achieve a more secure retirement.


Changes Made to Retirement Savings Plans

The Act includes the following changes to processes and regulations related to retirement savings plans. If your company offers retirement savings plans as part of an employee benefits package, it is essential to familiarize your fiduciaries with the changes.


Automatic Enrollment Required

Employers establishing new retirement plans after December 29, 2022, will be mandated to have an automatic enrollment provision in the plan effective January 1, 2025. The enrollment rate will be no less than 3% but no more than 10% of eligible wages. This rule will not apply to new businesses operating for less than 3 years or employers with 10 or fewer workers.

Employees will retain the option to opt-out. Additionally, an automatic enrollment plan must permit employees to withdraw their automatic contributions and any earnings within 90 days of the first contribution without incurring the 10% early withdrawal penalty.


Automatic Escalation Required

New retirement plans created after December 29, 2022, must also include an automatic contribution percentage increase starting in 2025. The automatic increase must be at least 1% each plan year following the completion of a year of service until the contribution is at least 10% up to a maximum of 15% of eligible wages.


Minimum Distribution Requirements

Under the new rules effective in 2023, individuals will be required to start taking their required minimum distributions (RMDs) from their tax-deferred retirement accounts at a later age. The age requirement will increase to 73 for individuals born in 1951 through 1959 and 75 for individuals born in 1960 and after. If individuals fail to withdraw the minimum amount required, they will face a reduced penalty of 25% instead of the previous 50%. If the mistake is corrected within 2 years, the penalty will be reduced to 10%.


Catch-Up Contributions Increase Required

Starting January 1, 2025, the new 401(k) law allows participants aged 50 or older to contribute up to $10,000 annually to an employer-sponsored plan. This amount will be indexed for inflation.

However, catch-up contributions made in 2024 and thereafter by participants earning more than $145,000 per year will be required to be on a post-tax, Roth basis. This change requires higher-earning participants to pay taxes now and withdraw tax-free money in retirement.


Optional Roth Treatment of Employer Contributions Optional

Employers can immediately change their plans to allow employees to elect employer matching and non-elective contributions as post-tax Roth contributions, as long as the contributions are fully vested when added to the plan.

The change provides more flexibility to employees and allows them to pay taxes now and withdraw tax-free money in retirement.


Increased Force Out Threshold Optional

Effective 2024, employers may force out a terminated participant’s account if the balance is less than $7,000. Prior to the Act, the balance was required to be less than $5,000.


Emergency Expense Withdrawals Optional

Under current rules, early distributions from retirement accounts come with an additional 10% tax, discouraging account holders from withdrawing funds for emergency expenses.

Beginning in 2024, the Act provides an exception for certain distributions relating to personal or family emergency expenses that are unforeseen and immediate. An employee may receive only one distribution per year, with a limit of $1,000. They also have the option to repay the distribution within 3 years.

Employees can only make additional emergency distributions during the 3-year repayment period once any previously taken funds are repaid.


Expanded Eligibility for Long-term Part-time Workers Required

The Act will reduce the time required for part-time employees who work between 500 and 999 hours per year to participate in their company’s retirement plan. Previously, a part-time employee who worked three consecutive 12-month periods with at least 500 hours would be eligible to participate in the plan. The new law reduces the service requirement to two consecutive 12-month periods with at least 500 hours. Under this provision, the hours must be counted starting in 2021 with plan entry as early as January 1, 2024, for long-term part-time workers.

The change aims to improve retirement security for a broader group of workers and encourage participation in retirement savings plans early. However, it does not apply to employees or nonresident aliens covered under collective bargaining plans, and these employees may be excluded from matching or other employer contributions.


Low-Income Employee Saver’s Match Optional

Beginning in 2027, workers with lower incomes will be able to receive a federal matching contribution of up to 50% of participant non-Roth contributions annually with a maximum credit of $2,000, which will be placed into their retirement savings account.

This new Saver’s Match will replace the existing Saver’s Credit.


Student Loan Matching Program Optional

Beginning in 2024, an employer may “match” student loan payments as if those payments were employee retirement plan contributions. This allows employees to progress on making student loan payments while still participating in employer contributions to their retirement savings. Employees may self-certify student loan payment amounts to the Plan sponsor.


Retirement Plan Administrative Costs Credits

Effective in 2023, small employers with fewer than 100 employees can claim a start-up tax credit for administrative costs associated with setting up a retirement plan. The credit is 50% of the administrative costs with an annual cap of $5,000. Employers with one to 50 employees may receive 100% credit up to $5,000.

Error Corrections Processing

The Employee Plans Compliance Resolution System (EPCRS) is a self-correction system for errors within retirement plans. The Act expands the types of errors that can be corrected internally through the EPCRS system. These changes include new rules for correcting benefit overpayments and certain safe harbors for correcting automatic enrollment implementation errors and missed deferral errors.


Participation Incentives

Under current rules, employers can only offer matching contributions to encourage employees to participate in retirement savings plans. However, effective from plan years beginning after 2022, the Act permits employers to offer small financial incentives such as gift cards to motivate employees to participate in the plan. All financial incentives should be of a nominal amount and not paid using plan assets.


Searchable Database

The Act mandates the Department of Labor (DOL) to create a searchable online database called the “Retirement Savings Lost and Found” within 2 years of enactment. The database will enable a participant or beneficiary to search for “lost” retirement accounts and track down contact information of plan administrators for the related retirement plan account.

From 2025 onward, plans must provide information to the DOL to be included in the database. This provision addresses the issue of unclaimed retirement benefits that can arise due to participants losing track of their accounts or not updating their contact and login information.


Navigate SECURE Act 2.0 Compliance Confidently

SECURE ACT 2.0 brings significant changes to retirement savings plans. Your company must stay up-to-date with these new regulations to avoid penalties and ensure compliance.

An employee benefit plan audit is vital in maintaining compliance and preventing potential issues. At Windes, we have extensive expertise in auditing employee benefit plans. We are the auditor of record for over 160 plans, and our team of dedicated professionals knows how to navigate between client contacts and outsourced service providers to facilitate an efficient and value-added audit.

Our experience and precision make us the ideal choice to ensure compliance with your employee benefit plans. We are committed to helping companies navigate the new rules and regulations under the SECURE ACT 2.0. Contact our team today to discuss your audit needs. Get our audit preparation checklist to start the process now.


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