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.

That said, financial penalties from the government should be the least of employers' worries when considering their plan offerings. The fact is that encouraging employees to save for retirement benefits everyone—especially small business owners. When staff members fail to secure their retirement, it can place additional financial burdens on their employers, who (naturally) want to ensure their loyal employees are taken care of in their retirement. The more money your staff saves during their working years, the less help they'll need when they retire.

Related: Evolving retirement landscape: how small businesses benefit from secure act 2.0

Additionally, having employees who plan for their retirement effectively allows business owners to plan for their own retirement. Many business owners know that saving too much relative to their employees can invite scrutiny and make it appear as if their retirement plan is discriminating in favor of highly compensated employees and owners.

Finally, offering robust retirement benefits can serve as a powerful recruitment tool, especially with today's record-low unemployment. While SECURE and SECURE 2.0 set out guidelines that encourage employers to offer these perks, not every owner will go above and beyond to deliver for their staff. Those that do may find that their dedication to taking care of their people gives their recruitment and retention efforts a boost.

What happens next?

With so many changes set to take place in the coming years, business owners may be concerned that they will be unable to keep up. Business owners and administrators who are unsure where to begin may want to consult their financial advisors for guidance and may also consider finding an experienced HR and retirement administration partner to help them understand how SECURE 2.0 might affect their business.

Regardless of whether a business owner plans to go it alone or partner with experts, taking the time to understand the new guidance and offer comprehensive packages to workers will be well worth the effort. As the labor and business markets become more challenging and the demographics of our workforce evolve, ensuring that employees' retirement plans are secure will bring peace of mind to owners and employees alike.

Drew Hancock is Senior Director of Retirement and Ancillary Services at Paychex.