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SECURE Act 2.0: Key Provisions for Employee Benefit Plan Sponsors

February 07, 2023

Plan sponsors, are you up to speed on SECURE 2.0 and the changes it brings to employee benefit plans? Read up on automatic enrollment updates, catch up limits, changes to part time employees and more.

The Securing a Strong Retirement Act, H.R. 2954, otherwise known as SECURE 2.0, signed December 29, 2022, expands and increases retirement savings and simplifies some existing rules. There are over 90 provisions in SECURE 2.0, here’s a closer look at six that will be particularly relevant for plan sponsors.

6 Important EBP updates

1. Automatic Enrollment- Effective for new plans starting after December 31, 2024, 401(k) and 403(b) sponsors will be able to automatically enroll employees once they become eligible to participate in the Plan. Some things to note:

  • Automatically enrollment amount cannot be less than 3% of salary, and no more than 10%
  • The amount of employee contributions is increased by 1% every year after automatic enrollment, up to a maximum of 10%.
  • Employees can opt out if they choose to.
  • Businesses with 10 or less employees and in existence for less than 3 years are exempt.
  • Church and government plans are exempt.

2. Catch-up limits- Check out our blog: SECURE 2.0 Enhances Catch-up Contribution Opportunities for Retirement Savers.

3. Required Minimum Distributions- Check out our blog, Turning 73 in 2023? Here are your RMD Requirements for the details, but essentially SECURE 2.0 Raises the RMD age from 72 to 73 starting in 2023.

4. Early Withdrawals Under SECURE 2.0, there are new early withdrawal provisions that are penalty-free:

  • Withdrawal as the result of a federally declared disaster if made within 180 days of the disaster, if the taxpayer’s principal place of abode is within the declared disaster area and if they have sustained an economic loss.
  • Victim of domestic abuse can withdraw after 2023, up to the lessor of $10,000 of 50% of the present value of their account without penalty.
  • Penalty-free early withdrawal may also be made by an individual diagnosed with a terminal illness, within a period of 84 months after a physician certifies the diagnosis.
  • After 2023, penalty-free withdrawal of up to $1,000 for personal financial emergency.

5. Part-time employees- Effective for 2025, Employees who work 500-999 hours for 2 consecutive years (down from 3) must be allowed to participate in their company’s retirement plan. Nonresident aliens and participants of collectively bargained plans are excluded

6. Matching Student loan payments- Effective 2024, employers may make payments to qualified plans that match qualified student loan payments made by employees.

  • The employee must be eligible for matching contributions.
  • Matching contributions for student loan payments must be at the same rate as those for elective deferrals.
  • The employer may rely on the employee certification of payment.

What can Plan Administrators do to prepare?

Generally Plan amendments do not need to be made until the end of the first plan year beginning on or after January 1, 2025, however, Plans are required to operate in accordance with the effective date of each provision.

Some things to think about:

  • Keep in mind that the changes have various effective dates, as noted above.
  • Implementing the changes will require extensive IRS and DOL guidance.
  • You may have heavier administrative burdens and increased costs.
  • You will need to work closely with payroll providers and third-party administrators to implement the changes.

Questions on SECURE 2.0? Contact us.

Visit our SECURE Act 2.0 Knowledge Center for more information on retirement changes that could impact you and your business.

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