What the Secure 2.0 Act Means for Employers

What the Secure 2.0 Act Means for Employers

President Biden signed the Consolidated Appropriations Act of 2023 (the Act) on December 29, 2022. Within this omnibus bill is the SECURE 2.0 Act. SECURE 2.0 introduces several key provisions for 401(k) and 403(b) plans and impacts many employer-sponsored plans.

Expanding Automatic Enrollment

Employers providing their staff with new 401(k) and 403(b) plans will be required to automatically enroll employees at a rate of at least 3% but not more than 10% of eligible wages unless an employee opts out. This provision applies for plan years on and after January 1, 2024.

Increasing Catch-up Contributions

Employees age 50 and older can contribute an extra $7,500 (for 2023) to their retirement accounts as a “catch-up contribution.” Beginning in 2025, this limit will increase to $10,000 (or, if greater, 150% of the regular catch-up contribution amount) for employees aged 60 to 63. The increased amount will be indexed for inflation after 2025.

Roth Treatment for Catch-up Contributions

Beginning in 2024, catch-up contributions must be made on a Roth (after-tax) basis. However, employees whose prior year wages do not exceed $145,000 (indexed for inflation) can make these contributions on a pre-tax basis.

Optional Roth Treatment for Employer Contributions

Employers may immediately allow employees to receive employer-matching contributions on a Roth (after-tax) basis.

Expanded Eligibility for Long-term, Part-time Employees

Under current law, 401(k) plans must allow part-time employees to participate after completing three consecutive years of service (with at least 500 hours). Effective for plan years beginning after December 31, 2024, the three-year rule is reduced to two years.

Student Loan Payments as Matching Contributions

Effective for plan years beginning after December 31, 2023, SECURE 2.0 allows employers to make matching contributions with respect to qualified student loan payments.

Withdrawals for Emergency Expenses

Beginning in 2024, SECURE 2.0 provides an exception to the 10% general tax that generally applies to early distributions from tax-preferred retirement accounts, such as 401(k). This exception will apply when the distribution is for emergency expenses (which are generally unforeseen immediate financial needs relating to personal or family emergency expenses).

These are only some of the changes made by the SECURE 2.0 Act. Employers should consult with their retirement plan service providers regarding SECURE 2.0’s numerous provisions, including how to incorporate the changes into their plans and communicate the new rules to employees.

This information is distributed with the understanding that CBIZ is not rendering legal, accounting, or other professional advice. The reader is advised to contact a professional before taking action based on this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

What the Secure 2.0 Act Means for Employershttps://www.cbiz.com/Portals/0/Images/CBIZ_HCM_article_secure_act.png?ver=82xiBvMT-M1iLaOfPnvIEA%3d%3dhttps://www.cbiz.com/Portals/0/Images/HCM-secure-act.png?ver=Vy9VdKFaQZw2W-a0i5wgRg%3d%3dExplore how the SECURE 2.0 Act affects current employer-run retirement plans and what it means for employers adding new retirement plan offerings. 2023-04-10T16:00:00-05:00Explore how the SECURE 2.0 Act affects current employer-runretirement plans and what it means for employers adding new retirement planofferings. Employee ManagementBenefits AdministrationHRIS SolutionsPayroll ServicesYes