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SECURE Act 2.0 Clears House for Retirement Savings Plan Changes

At a Glance

Main Takeaway

Understand the ramifications of the proposed SECURE Act 2.0

Next Step

Partner with Windes Employee Benefit Services (EBS) to ensure your employee benefit plans are cost-effective and support your business objectives as rules change.

What is the SECURE Act 2.0?

The Securing a Strong Retirement Act of 2022, also called SECURE Act 2.0, is a bipartisan-approved bill that improves retirement security and savings for workers in the US. This legislation makes it easier for businesses to offer their employees tax-qualified retirement savings plans and for all individuals to grow their retirement savings.

The bill strengthens and builds on the retirement savings and security legislation of the SECURE Act passed into law in 2019.

The SECURE Act 2.0 was first introduced to the US House of Representatives in 2021 through the Ways and Means Committee, with Chairman Richard Neal (D-Mass) and Ranking Member Kevin Brady (R-Texas).

The bill was amended to include retirement improvement and savings enhancement provisions from the RISE Act before being sent to the floor for a vote. On March 29, 2022, the US House of Representatives passed the SECURE Act 2.0 with a vote of 414-5.

The New Provisions

The SECURE Act 2.0 enhances retirement security and simplifies retirement-related taxes in the following ways:

Automatic Enrollment of Eligible Employees

This legislation requires employers to automatically enroll eligible employees in their company-sponsored retirement plans. Beginning in 2023, employees must contribute at least 3% of their pre-tax income annually, increasing every year by 1% until it reaches a minimum of 10% and a maximum of 15%. Previously, automatic enrollment was an option but not a requirement, meaning employees could choose not to participate.

Automatic enrollment only applies to defined contribution plans, like a 401(k) or 403 (b), established after this bill is signed into law. Some entities are exempt from this provision, including:

  • Businesses less than three years old
  • Companies with ten or fewer employees
  • Retirement plans from government and religious organizations

Amends Eligibility of Part-time Employees

The SECURE Act of 2019 established retirement savings security for part-time employees. All employees who work a minimum of 500 hours each year for three consecutive years are eligible to make tax-deferred contributions to a 401(k) account.

The new legislation will decrease the eligibility requirement to two years and expand the available retirement plans to include 403(b) plans. This means the first group of eligible part-time workers can start contributing in 2023 instead of 2024.

Increasing Catch-Up Contributions

The bill allows people nearing retirement to contribute a larger amount to their savings plans. Beginning in 2023, catch-up contributions would be required to be Roth (after-tax) contributions. While it keeps the previous catch-up contribution limit of $6,500 in place on 401(k) and 403(b) for those aged 50 to 61, limits increase for those 62 to 64 years old.

Starting in 2024, those 62 to 64 years old can contribute an additional $10,000 to their retirement plan each year. This higher limit will be indexed to account for inflation in the future. Under the current law, the total limit on employer and employee retirement contributions is $61,000 and $67,500 when catch-up contributions are included, which will increase if the SECURE Act 2.0 is enacted into law.

Raising the Age for Required Minimum Distributions

Currently, the age at which retirement account holders must take the required minimum distributions (RMDs) from their employer-sponsored retirement plan is 72. The SECURE Act 2.0 raises this age to 73 starting in 2023. It will increase again in 2030 to 74 and then to 75 in 2033.

The RMD is the amount retirees must take out from their accounts to avoid tax penalties. Raising the age for RMDs allows plan participants to benefit from their tax-deferred savings for an extended period.

Student Loan Matching Contributions

The SECURE Act 2.0 allows employers to begin making matching contributions to 401(k), 403(b), and 457(b) plans based on their employees’ student loan payments. This applies even if employees are not currently making contributions to their retirement plan. Student loan payments are treated as elective deferrals for determining matching contribution amounts.

Raises the Saver’s Credit

Currently, low and middle-income workers are eligible for the saver’s tax credit, a non-refundable credit based on the account holder’s contribution percentage, with a maximum limit of $1,000. The new bill raises the credit limit to $1,500, allowing employees to save more money on their taxes.

Establishes Database for “Lost” Retirement Accounts

This legislation establishes a retirement savings lost and found database at the US Department of Labor to help employees and retirees locate retirement accounts left at previous employers.

Since it is common for people to change jobs numerous times throughout their career, employees may forget about investments made with earlier employers. This information can be hard to track down, leaving retirees with financial losses. A national online database for retirement accounts will help workers find their retirement benefits.

Increases “Rothification”

Another change comes by allowing employer-matching “Roth style” contributions to retirement accounts. Roth contributions are made using after-tax income rather than pre-tax income, allowing retirees to avoid paying income taxes when they take distributions. Previously, employers could only match contributions to a pre-tax 401(k).

Where the Bill Currently Stands

The SECURE Act 2.0 has passed the US House of Representatives and now heads to the Senate. While it is expected to gather bipartisan support, Senators may have retirement security amendments or proposals of their own that get incorporated into the legislation. If the Senate passes a bill that includes changes, the House of Representatives will need to vote to approve the changes before the legislation can head to the President’s office.

Partner with Windes for Your Retirement Plan Compliance

A competitive employee benefits plan helps attract and retain talent in today’s tight labor market. Windes can help you stay on top of benefit trends and implement the latest changes in employer-sponsored retirement plans.

Our Employee Benefit Services (EBS) can help you ensure your employee benefit plans are cost-effective and support your business objectives while complying with Department of Labor, IRS, and ERISA rules and regulations. Contact our Los Angeles, Long Beach, or Orange County office to learn more.

Therese Cheevers
Therese Cheevers, APA, ERPA

Partner – Chair, Employee Benefit Services
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