Moving into the new year, business leaders began staring down a new set of regulations and guidelines designed to help Americans save for retirement. SECURE 2.0 was passed in December 2022 as part of a $1.7-trillion omnibus spending bill. The legislation amends, expands, or introduces a variety of provisions that will have significant effects on retirement administration, regulations, and planning in the coming years.

Building on the successes of 2019's Setting Up Every Community for Retirement Enhancement (SECURE) Act, the goal of SECURE 2.0 is to build initiatives that can help Americans plan for a more secure retirement and facilitate long-term financial well-being. Per the bill's provisions, the U.S. government will offer a variety of benefits that are designed to incentivize employees to utilize their 401(k)s and encourage employers to offer robust retirement options.

What's new in SECURE 2.0

SECURE 2.0 builds on the important work started with the original SECURE Act to modernize the retirement savings infrastructure, to better serve the needs of a diverse and multigenerational workforce. The legislation includes provisions to help all workers, regardless of their stage in their career, save for retirement without financial worries, and enables employers to offer more comprehensive and competitive benefits plans.

SECURE 2.0 addresses a wide range of topics related to retirement planning, but not all of them will take effect immediately. Employers should familiarize themselves with these regulations and the related timelines, to ensure compliance and alignment with SECURE 2.0's guidance.

In 2023, SECURE 2.0 will:

|

• Expand 401(k) tax credit eligibility. The original SECURE act awarded a tax credit to small businesses (fewer than 100 employees) that set up a 401(k) program for their employees. Under the original Act, eligible businesses received a tax credit equal to 50% of the plan's total administrative costs of up to $5,000 each year. The new bill adjusts that benefit by adding language that gives eligible businesses with 50 or fewer employees a tax credit equal to the entire administrative cost (up to $5,000) associated with establishing a workplace retirement plan. Additionally, SECURE 2.0 extends a new tax credit to businesses with 50 employees or fewer, offering employers in this group up to $1,000 per employee for eligible employer contributions.
• Raise the required minimum distribution age. SECURE 2.0 includes a gradual increase to the required minimum distribution (RMD) age, raising it from 72 to 73 in 2023 and to 75 by 2033. That means individuals will be able to hold off on making withdrawals if they don't want or need to use the money they've set aside in their 401(k)s.

In 2024, the legislation will:

|

• Establish emergency withdrawal rights. SECURE 2.0 outlines circumstances under which employees will be allowed to make emergency withdrawals from their 401(k) account. Beginning in 2024, eligible employees whose employers allow it will be able to withdraw up to $1,000 a year for emergency situations without paying the customary 10% fee for early distributions. Offering this benefit will decrease the likelihood that employees seek financial help from their employers in these situations.
• Introduce student loan matching. SECURE 2.0 aims to address the student loan debt crisis. Many employees have been foregoing 401(k) contributions because they feel it's more important to pay down their student loans, meaning they miss out on employer-matched contributions. Beginning in 2024, employers will be able to match student loan payments in the form of 401(k) contributions, so workers focused on paying down their debt receive the benefit of tax-free retirement savings early in their careers.

In 2025 and beyond, SECURE 2.0 will:

|

• Implement auto-enrollment requirements. By 2025, certain employers will be required to auto-enroll employees into their available 401(k) plan at a minimum 3% contribution rate. The provision also includes an automatic increase to the contribution percentage each year. This change is intended to make enrollment more accessible and encourage employees to save more of their paychecks by removing any barriers to entry. Of course, employees will have the option to dis-enroll from the program or change their contribution rate as desired.
• Increase catch-up limits. Employees over age 50 are already allowed to allocate extra funds to their retirement accounts in the form of catch-up contributions to help ensure they have what they need to secure their retirement. SECURE 2.0 will expand this in 2025, doubling the annual catch-up contribution maximum from $5,000 to $10,000 for participants aged 60-63.
• Expand accessibility for part-time employees. The original SECURE Act afforded 401(k) enrollment rights to part-time employees who work at least 500 hours annually and have been employed at an organization for a minimum of three consecutive years. In 2025, the minimum term length will be lowered to two years, extending access to 401(k) plans to more employees. This amendment to previous rules will be particularly beneficial to younger employees as flexible, part-time, and "gig economy" jobs capture a larger percentage of the labor market.
• The Savers Credit. The Saver's Credit encourages millions of low- and middle-income families to begin saving for retirement by offering married, joint-filers making less than $71,000 annually a credit for their contributions. SECURE 2.0 will transform that credit in 2027, redefining it as a "Saver's Match." Under the new guidelines, the Federal Government will match 401(k) contributions made by eligible households up to $2,000, doubling the current benefit.

What it means for small business owners

Although entrepreneurs have certainly heard rumblings related to the bill's passing, many business leaders are unsure of what changes are being made, what to expect when these guidelines come into effect, and what steps they'll need to take to comply. The above provisions may appear to apply mostly to employees, but their effects on business leaders will be equally significant. First and foremost, it will mean leaders need to understand the nuances of these rules so they can put policies into place in a timely manner. Failure to comply with regulations pertaining to 401(k) administration can lead to significant financial penalties.