President Biden recently signed the Secure 2.0 Act as part of a comprehensive appropriations bill for fiscal year 2023. This legislation builds on the Every Community Retirement Improvement Preparation Act (SECURE), which passed in 2019. Simply put, the SECURE Act and Secure 2.0 are intended to Helping a wide range of Americans achieve retirement security and financial well-being.
One of the most groundbreaking elements of Secure 2.0 is its provision to employees burdened with student debt. Starting in 2024, the law allows companies to match contributions to retirement accounts for employees who aren’t already making 401(k) contributions themselves, but instead make eligible student loan payments.
The law establishes a practice that Abbott Laboratories has already successfully implemented with IRS approval. Under Secure 2.0, companies that follow the “Abbott Model” will no longer have to seek permission from the IRS to receive the benefits of this feature.
In addition, Secure 2.0 will also extend previous provisions and add new provisions that will help older workers, retirees, military spouses, and small business owners and their employees save more for retirement.
The House passed a version of Secure 2.0, called the Strong Retirement Insurance Act of 2022, on a bipartisan 414-5 basis in March 2022. Similar legislation, the Retirement and Savings Insurance Act, has been introduced in the Senate, but has not made it out of the Senate Finance Committee on Despite the bipartisan support.
However, the shady Secure 2.0 legislation was included in the sweeping appropriations bill for fiscal year 2023. In a statement, Senate Finance Committee Chairman Ron Wyden, D-Oregon, said, “Americans deserve a dignified retirement after decades of hard work, and [the Secure 2.0 Act] An important step forward. We’re making great progress for the millions of low- and middle-income workers, who are less likely to have access to retirement savings. These workers often have demanding, physical jobs, and rely solely on their own Social Security income. And for the first time, millions of other workers will access retirement resources and see federal retirement contributions year after year, even if they have no tax liability. These are reforms that will make a meaningful difference to workers who have struggled to save.”
For employers, Secure 2.0 means that HR and benefits professionals, who are already knee-deep in implementing and evaluating changes from the first SECURE Act, should also prepare for this next phase. Here are some steps that may help.
Step One: Understand Secure and Secure 2.0
The SECURE Act, which was signed into law in December 2019, affects nearly every employer’s retirement plan by expanding plan coverage, encouraging savings, and lowering plan costs. For example, tax incentives have been introduced for small businesses to expand retirement plans and allow them to join other companies to offer retirement savings accounts.
Most of the provisions that were in the first canon are still part of the later edition. They include expanding automatic enrollment in 401(k) plans when a new plan is created, creating multi-employer plans for nonprofits and small businesses, allowing for higher catch-up limits, increasing the age of required minimum distributions, and reducing excise tax on certain accumulations in qualified plans. and more.
Secure 2.0 takes these concepts even further and adds more to the mix. Automatic enrollment will now be mandatory for new plan participants. The catch-up contributions will be expanded further and the lifetime of the required minimum distributions will be even higher. Read on to learn more about these changes. (You can also read the full text of the law Pursuant to the Division T-Secure 2.0 Act of 2022.)
Step Two: Re-process your automatic registration
Automatic enrollment in 401(k) and other employer-sponsored retirement accounts has grown in popularity in recent years, but it has never been mandatory. Employers were able to choose whether or not they wanted to implement this feature. However, under Secure 2.0, employers introducing new retirement plans are required to automatically enroll employees starting in 2025. This is a significant change.
Employees will be able to opt out of plans if they want, though that’s not the point. And data from Vanguard Research published in February 2021 indicates that most employees will likely stay where they are. With automatic enrollment, engagement rates among 813,918 new employees tripled to 91%, compared to 28% under voluntary enrollment, according to the research. The enrolled participants were also more likely to automatically put more money into the plans over time, either automatically or voluntarily.
If you’re an employer implementing a new retirement plan and haven’t already, you may want to create an automatic enrollment feature in anticipation of the new mandate in 2025. You may also want to start crafting educational materials for employees explaining how to autoenroll and opt out.
However, the automatic enrollment mandate will not affect existing employer-sponsored retirement plans. Furthermore, small businesses with 10 or fewer employees, new businesses in operation for less than three years, and state and church plans will also be exempt.
Step three: Evaluate your student debt benefits
Although the IRS has opened the door to employers offering 401(k) funds to employees who pay off eligible student debt, many HR professionals have been wary of implementing the benefit without authorized legislation.
By authorizing these matches, Secure 2.0 eliminates this worry, leaving administrators free to provide this important assistance to employees burdened with student debt. What’s more, matching linked student loan payments can help employers expand their plan’s participants beyond highly-compensated employees, which could help them pass the annual 401(k) anti-discrimination test.
Because the matching contributions will go into retirement savings rather than paying off student loan debt, this feature does not replace other student loan repayment programs your company offers or you may consider offering. Now might be a good time to look at your company’s overall strategy for helping employees pay off student debt to see where a 401(k) student loan matching feature might be a better fit. This feature may be a way to help employees balance short- and long-term financial wellness goals.
Step Four: Help address the concerns of older workers
Secure 2.0 provides a framework for providing more retirement savings strategies for your older workers, too. Catch-up contributions for employees who turn 50 are currently $7,500 for 2023. The new legislation increases annual compensation contributions to a maximum of $10,000, or more at 50% of the normal compensation amount, for participants ages 62, 63, and 64 starting at 2025.
Employers will need to adjust their plan structures to accommodate higher contribution limits, but they may also want to make an all-out information effort to ensure that older workers understand they have a new opportunity to catch up on retirement savings.
Employers may also want to help older workers understand and strategize for the new minimum age requirements for distribution. In order to allow people to save longer for retirement, the SECURE Act raised the minimum age for required distributions (RMDs) from 70 to 72. Secure 2.0 increases that age to 73 in 2023 and 75 in 2033.
Workers nearing retirement who may be trying to figure out their withdrawal strategies and rhythmic movement disorder will need to be aware of the new rules, if they become law. They may need more financial planning advice on this topic.
The above are just a few of the many changes to the retirement benefits in Secure 2.0. Lawmakers hope that Secure 2.0 will augment and strengthen many of the features of the SECURE Act. Ideally, it could help HR professionals provide more and more flexible options for their employees of all ages who want to be able to save for retirement as well as reach other important financial goals in their lives. By being aware of and preparing for potential changes, employers may be able to roll out new programs smoothly and keep employees informed of their new options.
The field of benefits is constantly evolving. SoFi at Work can help you plan for the next generation of financial wellness benefits. With SoFi at Work, you can access the platforms and information that will help build the benefits you need to create a successful and loyal workforce.
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