What Employers Need to Know: SECURE Act 2.0

Written by
Reilly Billian

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On December 29, 2022, the Securing a Strong Retirement Act of 2022 (SECURE Act 2.0) was signed into law. This new legislation intends to provide American employees with increased access to retirement plans and savings while creating new incentives to expand employer and employee retirement contributions.

As an employer, here are the key SECURE Act 2.0 provisions, and their timing, you need to know:

Effective Now

Roth Employer Contributions Employers can now offer matching or nonelective contributions as post-tax Roth contributions.
Small Incentives for Contributing to a Plan Employers can now provide de minimis (small) rewards to employees who participate in a 401(k) or 403(b) plan as an incentive to save for retirement and expand participation in the plan.

De minimis has not yet been defined but is expected to be a small amount of taxable cash or gift card.

Tax Credits For new retirement plans, companies with fewer than 50 employees can claim up to 100% of the start-up administration costs (up to a maximum of $5,000).

For employees who make less than $100,000 per year, employers can claim an additional $1,000 per person (maximum $50,000). Employers could apply this credit toward a matching contribution if they choose.

Catch-Up Contributions Increased In 2023, participants aged 50 and older can contribute an extra $7,500 per year annually into their 401(k) account. This amount will increase to $10,000 per year starting in 2025 for participants aged 60 to 63.

Effective In 2024

Roth-Required Catch-Up Contributions

 

Catch-up contributions for participants over age 50 earning more than $145,000 per year must be made on a post-tax, or Roth, basis.

Employees earning less than $145,000 can choose either pre-tax or Roth contribution type.

Employers should review that their offered plans allow for Roth contributions to ensure availability to employees.

Required Minimum Distributions (“RMDs”) are not Required for Roth 401(k) and 403(b) Accounts Retirement plan savings in a designated Roth 401(k) and 403(b) accounts are no longer subject to RMD rules. This means employees’ account can continue growing tax-free.
Emergency Withdrawals Employers may amend their defined contribution plans to allow participants to take emergency withdrawal from their retirement plan of up to $1,000 per year. Employees may take one distribution per year and have the option to repay the withdrawal within 3 years.

If repaid, the employee may take another distribution if necessary. If the withdrawal is not repaid within 3 years, the employee cannot take another distribution.

Emergency distributions are taxable; however, it is not subject to the 10% excise tax that applies to a hardship distribution prior to age 59 ½.

Matching Student Loans Employers will be able to match student loan payments made by employees as if they were retirement plan contributions.

These matching contributions will be treated like regular retirement matching contributions for all purposes and will be subject to nondiscrimination testing and safe harbor rules. Employers may rely on employee certifications as evidence of student loan repayment amounts.

Domestic Violence or Abuse Distributions

 

Starting in 2024, employers may allow participants who self-certify they have experienced domestic violence or abuse within the last year to take distributions of up to the lesser of 50% of their vested account balance or $10,000. The distribution is taxable, but is not subject to the 10% excise tax, and can be repaid to the plan within 3 years of withdrawal.
Terminal Illness Distributions

 

As of 2024, employers may permit a participant who is eligible for distribution and whose physician certifies that they have a terminal illness to withdraw their benefit without the 10% excise tax. This amount is eligible for repayment in limited circumstances.

Effective in 2025

Automatic Enrollment for New Retirement Plans Beginning in 2025, employers who start new retirement plans after December 29, 2022, will be required to automatically enroll employees in their retirement plan at a rate of at least 3%, but up to a maximum of 10% of eligible wages. Employees may opt out if desired.

Existing plans prior to December 29, 2022, new companies (in business for less than 3 years) and employers with 10 or fewer workers are excluded from this requirement.

Automatic Escalation Beginning in 2025, for new retirement plans started after December 29, 2022, contribution percentages must automatically increase by 1% on the first day of each plan year following completion of a year of service until the contribution is at least 10%, but no more than 15% of eligible wages.

Exceptions apply for plans existing prior to December 29, 2022, governmental and church plans, businesses with 10 or fewer employees, and employers that have been in business for less than 3 years.

Expansion of Requirement for Part-Time Employee Participation The original SECURE Act requires employers to allow part-time employees who have worked at least 500 hours for at least 3 years to participate in provided 401(k) plans beginning in 2024.

SECURE 2.0 reduces the period during which a part-time employee must have worked at least 500 hours a year to be eligible to participate to just 2 years and extends the requirement to 403(b) plans.

Both changes are effective for plan years beginning after December 31, 2024.

Long-Term Care Insurance Distributions

 

As of December 29, 2025, employers may allow participants to take distributions to pay for long-term care insurance. The distribution is limited to the lesser of the cost of the insurance, 10% of the vested account balance, or $2,500 annually.

For assistance in evaluating how these provisions may impact your benefit offerings, we are here to help, contact us at www.insourceservices.com.

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