How Secure 2.0 Makes Retirement Plans Easier and Better for Employers and Employees

Passed with bipartisan support late in 2022 as part of an overall budget package by Congress, the so-called Secure 2.0 provisions represent some of the most significant changes to federal laws around retirement plans. Even more than the original Secure Act from 2019, Secure 2.0 will make retirement savings easier and more accessible to many Americans and will make it easier for businesses of all sizes to offer plans and encourage their employees to participate. The law included 92 provisions for retirement plans, some that take effect immediately and others that will be phased in over the next decade.

This is by no means a complete list of the provisions, but let’s take a look at some of the most impactful.

Available in 2023

• The age for required minimum distribution (RMD) is raised to 73 for those who turn 72 in 2023 or later
  • The age will increase to 75 in 2033.
• If you fail to take the RMD on time, the excise tax is reduced from 50 percent to 25 percent and can be reduced all the way to 10 percent if a timely correction is made.
• Small businesses with 50 employees or fewer who start new retirement plans will get a tax credit for up to 100 percent of the administrative costs, with a cap of $5,000, up from just 50 percent previously.
• Employers can allow employees the option of accepting matching company contributions on a Roth basis—meaning after tax. Keep in mind, however, your employees will be taxed on that contribution when it’s made.

Available in 2024

• No more RMDs for Roth money-type accounts.
• Those with compensation of more than $145,000 (indexed) will be required to make catch-up contributions on a Roth basis.
• The small account force-out limit will be increased from $5,000 to $7,000
• Small plans can use a new “starter plan” structure, which is designed to ease administrative burdens.
• Employers will have the option of making matching contributions based on an employee’s student loan repayments, which will be a very attractive benefit for younger employees.
• Eligible employees will have the option of adding “sidecar” accounts, which are emergency savings accounts within the 401(k) plan.
• Employees have more allowed reasons for taking limited, in-service withdrawals without the 10 percent penalty.
  • One reason is for domestic abuse survivors to withdraw funds for escaping and recovering from their victimization. They can take the lower of $10,000 or 50 percent of the value of the account.
  • Another is for disaster recovery, up to $22,000 from an employer retirement plan or IRA. This applies to federally-declared disasters occurring on or after Jan. 26, 2021.
• The Department of Labor will create a “lost retirement account database” to help people recover their retirement funds amid job changes.

Available in 2025 and Beyond

• Any new start-up plan will require auto enrollment of eligible employees at a contribution rate of 3-10 percent.
  • That contribution will rise by 1 percentage point annually until it reaches 15 percent, with a few exceptions.
  • Employees must opt out if they do not wish to be enrolled or have their contributions increase.
• The catch-up contribution limit for employees age 60-63 will increase to the greater of $10,000 or 50 percent more than the regular catch-up limit
• Long-term part-time employees working at least 500 hours must be eligible for the plan after two years instead of three.
• A Savers Match program will be implemented in 2027 and will provide for a matching contribution to be made by the government up to $1,000 for qualified savers.
• One printed, paper statement must be issued annually starting in 2026, with certain exceptions.

This won’t be the last time the government changes retirement plan laws. Because this act had strong bipartisan support, we can expect more provisions even with a split government and deadlocked Congress.

Retirement plans are good for employees and good for companies. They help everyone be more financially secure, which can have ripple effects throughout a business. Be sure to talk with your advisor about how the most recent changes affect your plan or how they could help you start a new one.

Emily Sesler is a retirement plan advisor helping companies of all sizes offer better, more complete benefits to their employees. She can be reached by email at Emily.Sesler@pnfp.com, by phone at 540-769-8574 and in person at Pinnacle’s Campbell Avenue office in downtown Roanoke, VA.