How the ‘Securing a Strong Retirement Act (SECURE 2.0)’ Improves Retirement Security for Workers and Impacts Employers
By Kyle Rose, CPA, CMA
Principal, Assurance
According to a report by the Department of Labor, 69% of private industry workers had access to company retirement benefits, but only 52% participated in them. Employee benefit strategies and retaining talent continue to be a focus point for manufacturers.
The Consolidated Appropriations Act signed on December 29, 2022 will add to these considerations. The bill contained the Securing a Strong Retirement Act (SECURE 2.0) which was a follow up to the Setting Every Community Up for Retirement Enhancement Act signed in 2019.
SECURE 2.0 includes changes intended to improve retirement security for Americans. Some of the most relevant provisions include:
Student Loan Payment Matching: Starting in 2024, the law will allow employers to make matching contributions per their plan provisions when an employee makes a student loan repayment. Employers can rely on an annual employee certification as to the amount of student loan payments made.
Change in Required Minimum Distributions (RMDs): The required minimum distribution age moves to 73 in 2023 and to 75 in 2033.
Enhanced Catch-Up Contributions: For 2023, individuals over 50 can contribute $7,500 annually as an additional contribution. Starting in 2025, employees between the ages of 60 and 63 can make catch-up contributions equal to the greater of $10,000 or 150% of the standard catch-up contribution. These amounts are subject to inflation adjustments annually. Also, catch-up contributions made by certain high-paid employees must be designated as Roth contributions.
Penalties: Starting in 2024, employers can offer penalty free distributions to participants experiencing domestic abuse and emergency personal expenses. Penalty free distributions for terminally ill employees are allowed after December 29, 2022.
Expansion of Auto-Enrollment: Beginning in 2025, companies with a new 401(k) or 403(b) plan will be required to auto-enroll their employees into these plans at a minimum contribution rate of 3%-10%. The rate will increase 1% each year up to 10%-15%. An employee may elect out of this provision. Businesses with 10 or less employees and new businesses will be exempt.
Part-Time Employees: Effective 12/31/24, employees who work between 500 and 999 hours for two consecutive years must be allowed to participate in the company’s retirement plan. The current waiting period is three years.
Tax Credits: For employers with 50 or fewer qualifying employees, the credit for starting a new retirement plan in 2023 is increased to 100% of administrative costs and ranges from $500-$5,000. In addition, there is an additional credit of up to $1,000 per employee for employer contributions made for employees earning less than $100,000 during the first year of the plan. This credit decreases by 25% over each of the following three years.
Emergency Savings: Beginning in 2024, retirement plans may offer linked “emergency savings accounts” which enables employees to make Roth contributions to a savings account within the plan. Withdrawal transactions are penalty free and aren’t required to be substantiated. The emergency account is capped at $2,500.
Immediate Incentives for Participation: Previously employers could only provide matching contributions as an incentive to participate. Beginning in 2023, employers can incentivize participation in their plan through modest de minimis financial incentives, such as gift cards.
Saver’s Match: Beginning in 2027, lower-income employees can receive a federal matching contribution of up to $2,000 per year deposited to their retirement account. The match is equal to 50% of the employees’ contributions but phases out completely at incomes of $71,000 MFJ and $35,500 Single. This match replaces the current Saver’s Credit.
This summary highlights some, but not all, of the new provisions in SECURE 2.0, but these are some of the key areas that could impact businesses.
Jennifer Clement is an executive sales and marketing leader specializing in value creation for the C-suite. In her current role at CLA, Jennifer collaborates on strategy with executives of global manufacturing and distribution companies to accelerate results. Previously Jennifer served as a Global Business Acceleration Leader for Complete Manufacturing and Distribution (CMD). During her time with CMD, Jennifer lived and worked in Asia from 2015-2019. Prior to CMD, she spent 10 years in senior care technology. Jennifer started her career at Johnson Controls (JCI) and spent nine years in leadership roles; followed by five years at Rockwell Automation (ROK) leading c-suite strategy and marketing operations.
Comments are closed.