Provisions of the SECURE Act 2.0
Do you ever wonder whose job it is to come up with the name of new laws? Probably a committee starts with a word that transforms to an acronym and then the committee creates a catchy phrase to make it fit. Take the employment law, WARN, for example. The law requires employers in certain situations to inform (or warn) their employees they are part of a reduction in force or laid off. Do you know what WARN stands for? Worker Adjustment and Retraining Notification. Creativity points for sure and perhaps a more appropriate way to address a difficult message.
A more recent example? The SECURE Act 2.0. What are the actual words behind it? It stands for Setting Every Community Up for Retirement Enhancement. If that means I might feel more secure in my retirement, sign me up.
SECURE Act 2.0 Provisions
While I don’t know how they came up with the name, I do know a little bit about this new employment law (yes, another one) that has taken effect and will continue to unleash many provisions over the next several years. Probably even after you and I have entered our own blissful stage of retirement.
If you are an employer, read on because this may impact you. If you are an employee, read on because it will likely impact you. If you’re a parent who is trying to ingrain in their adult child’s head the importance of retirement or asking them how they are going to pay off their student loans, read on, you might just find a slice of comfort in your day.
BLUF (kind of) – Among many things, the goal is to increase savings (i.e., retirement) opportunities for the workforce through an employer sponsored 401k or 403b retirement plan.
I won’t recite the 350-page legal document. Rather, here’s a rundown of what I think are the most important components to the SECURE Act 2.0. Please note there are details upon details under each of these provisions so if you are a voracious reader or would like a snooze, the full Act can be found on congress.gov.
Automatic Enrollment – For new 401k and 403b plans beginning after Dec. 31, 2024, it is mandatory for workers to be automatically enrolled into their employer’s plan. The initial deferral rate is at least 3% but not more than 10% and increases each year by 1% to at least 10% but not more than 15%. Parents – this is the EASY button for your kiddos who would rather spend their money on clothes and cars. They can’t miss what wasn’t deposited into their net paycheck. Note: some employer plans are exempt including plans established before Dec. 29, 2022, companies with 10 or fewer employees, and companies in existence less than three years.
Starter 401k Plan – Employers who do not have a retirement plan can establish a starter 401k or 403b where only elective deferrals are permitted (i.e., no employer match). This is a great option for employers who want to attract and retain great talent with a retirement plan option without having to provide an employer match if they are not in a financial position to do so. The elective contribution limit is $6,000 and will adjust for inflation after December 31, 2024, and every year thereafter.
Emergency Savings Account – This Act provides another way to help employees become more financially stable through an emergency savings account. Participants may set up a savings account linked to their 401k account. They can direct up to $2,500 of their total annual deferral to a savings account and those deferrals are eligible for the employer match. Withdrawals can be made monthly and do come with a cost after the first four withdrawals. For individuals just entering the workforce, this is a great option to build up a savings account while making the money work for them through investment options.
Student Loan Payments – Another perk for individuals who have new or lingering student loans. Employers will be allowed to make matching contributions toward a qualified student loan payment so long as the participant is enrolled and making a deferral contribution to a 401k or 403b retirement plan. This is a benefit employers can use to bolster their recruitment efforts.
Higher Catch-Up Limit – Beginning Jan. 1, 2025, the Catch-Up contribution limit is increasing for employees reaching ages 60-63 to the greater of $10,000 or 150% of the regular catch-up limit in effect for 2024, indexed for inflation. This is significant for those of you who are approaching the chapter when every day is the weekend.
Invest Your Money Longer – Participants are required to take distributions by a certain age (today it is 72). Effective Jan. 1, 2024, this increases to age 73.
It may be difficult to find and retain great talent amidst a now global workforce. The provisions of this Act, while expansive, are aimed at benefiting both sides of the employment landscape. A few positive thoughts to end with:
To Employers – I challenge you to become educated on what is required, what’s not and how you can use this to attract and retain great talent. Consult with your HR professionals, retirement plan advisors and plan administrator.
To Employees – I challenge you to save more for retirement, even if it’s $5 a pay period. Use the benefits of this Act to help pay off lingering student loans or start a small emergency fund. Always pay yourself first.
To Parents – There is light at the end of the tunnel. You won’t always be the bank for your adult children. Talk to them about saving for their future and encourage them to start now. And don’t leave money on the table.
If you would like more information about the author of this post or Connectify, visit connectifyhr.com.
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