SECURE 2.0 Passed with New Opportunities

Secure Act ChangesSECURE 2.0 has passed, but what is next?

Now that the long-anticipated SECURE 2.0 Act has passed, what does that mean for employers and the future of workplace retirement plans?  For those unfamiliar, the legislation is a follow-on to the original SECURE Act passed in 2019.  SECURE 2.0 is designed to make retirement savings opportunities more accessible to millions of American workers.

According to a recent BenefitsPro article, the passage of SECURE 2.0 accomplished three critical things:

1) It validated that emergency savings matters by belonging in the retirement system.  It should include an option for automatic enrollment and be eligible for employer matches;

2) It provided legislative clarity on concrete ways for plan sponsors and vendors to create practical emergency savings options in retirement plans; and

3) As of the beginning in 2023, it provided more-accessible tax incentives to contribute to retirement plans,’ said Timothy Flacke, co-founder and executive director of [registered investment advisor (RIA)] Commonwealth.”

Citing the Washington Post, BenefitsPro summarized as key provisions of SECURE 2.0:

  • Automatic enrollment. Starting in 2025, most businesses will be required to automatically enroll employees in 401(k) plans. Employees will contribute between 3% and 10% of their wages. Each year, the contribution will increase by 1% until it reaches at least 10% (although not more than 15%).
  • Saver’s match. For workers earning less than $71,000 per year, the federal government will provide a 50% match up to $2,000 in employee cash contributions, which means the government will provide a maximum of $1,000. This cash will be deposited directly into retirement accounts.
  • Emergency withdrawals. One penalty-free withdrawal for unexpected or immediate expenses arising from family or personal needs is allowed.  One withdrawal of up to $1,000 will be allowed per year if the amount is repaid.  If it is not, another withdrawal cannot be made for three years.
  • Emergency savings. Employers have the option of offering their lower-paid employees a savings account linked to their long-term retirement plans.  Employers also can automatically opt workers into the savings accounts, contributing no more than 3% of the employee’s salary.  The account will be capped at $2,500, and additional money will be routed into the retirement account.
  • Part-time worker enrollment. Under current law, part-time employees can have a 401(k) plan.  However, they need to work with their employer for one year with 1,000 hours of service or three consecutive years with at least 500 hours of service annually.  The new law will reduce that three-year eligibility period to two years.
  • Mandatory distributions. Under current law, people with 401(k) plans must take out money from their accounts starting at age 72 to ensure they use the money rather than pass it down through their estates.  The new proposal increases that mandatory age to 73 starting in 2023 and then 75 starting in 2033.
  • Student loan matching. Workers strapped with student debt may not be able to afford to put money in retirement accounts.  This causes them to miss out on employers’ matching contributions.  Employers now can choose to make contributions to retirement accounts based on an employee’s student loan payments.

SECURE 2.0 is designed to help Americans become better prepared for retirement.  This Act should assist employers in taking a more active role in supporting employees’ financial stability and well-being.  Now, it’s up to employers to implement these provisions.  It will help ensure that workers have the best opportunity to build wealth and financial security.  Taking proactive action on these measures can make retirement plan benefits more competitive.  It should also help employers to attract talent and boost employee loyalty and job satisfaction.  These are all positive outcomes in today’s uncertain economic environment and rapidly shifting job market.


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