Key provisions of SECURE Act 2.0

• Section 101: Automatic enrollment and contribution escalation. Section 101 of SECURE Act 2.0 requires all new employer-sponsored 401(k) and 403(b) plans adopted after December 29, 2022, to automatically enroll employees. The automatic enrollment must be set at a minimum of 3% of the employee's pay but not more than 10%. In addition, this section mandates that each participant's contribution amount be automatically increased by 1% each year until it reaches at least 10%, but not more than 15%. These provisions aim to increase retirement savings and encourage greater participation among employees.
• Section 125: Reduced eligibility requirements. Section 125 reduces the eligibility requirements for 401(k) plans from three years to two consecutive years, with a minimum of 500 hours worked each year. Employees must also be at least 21 years old by the end of the second year. This change expands retirement plan access for part-time workers, addressing the challenges they previously faced in qualifying for such plans. However, it adds complexity to HR processes and necessitates meticulous tracking of employee hours.
• Section 603: Catch-up contributions and Roth treatment. Section 603 introduces changes related to catch-up contributions for individuals aged 50 and above who earned over $145,000 in the previous year. It allows catch-up contributions to be classified as Roth contributions. Roth contributions are made with after-tax income and offer tax benefits upon retirement. Implementing this provision requires recalculations and accurate reporting in payroll systems, which can be challenging for employers. However, the good news is the IRS has given plan sponsors an additional two years to implement Section 603, providing welcome relief to the industry. Now, the original deadline of December 31, 2023 has been extended to December 31, 2025, with that two-year period in between considered an administrative transition period.

The challenges of manual processes

Implementing the provisions of SECURE Act 2.0 presents significant challenges for organizations due to the reliance on manual processes.

Let's consider, for example, an employer that needs to report employee eligibility to their 401(k) provider. Many 401(k) providers lack compatibility with the multitude of HR and payroll systems, making it difficult to automate workflows and ensure compliance. As a result, HR personnel often resort to manual processes—having to regularly upload new files, make manual changes in systems and do their best to double-check data accuracy—to try to ensure correct eligibility data across systems. However, this manual approach increases the risk of errors, which may go unnoticed until it's too late.

Meanwhile, employers face the possibility of fines if they fail to report eligibility information accurately or comply with the new regulations. In fact, a single error in tracking contributions or eligibility could result in fines for employers.

Choosing the right technology to ensure SECURE Act 2.0 compliance

Employers and retirement plan providers affected by Section 125 and Section 603 of the SECURE Act 2.0 must begin taking the necessary steps to prepare for compliance—now. Understanding the legislation is the first crucial step. Next, it's important to ask a few key questions:

How do I identify which of my plan participants are, or will soon be eligible under Section 125 and 603 regulations? Do I have the technology in place to automate plan enrollment and contributions updates— and manage these processes on an ongoing basis?

To facilitate compliance, organizations need the right technology at their disposal to transfer large volumes of data between plan providers and sponsoring employers, including sensitive personal identifiable information (PII) and payroll details. Various approaches can be employed for data transfer, each with its own pros and cons:

• Manual data entry is inexpensive but prone to errors, compliance violations, and inefficient use of time.
• SFTP or flat files allow for bulk data transfer but rely on manual entry, lack real-time data access, and pose challenges for frequent syncs.
• Custom integrations provide real-time data syncs, automation and compliance with Section 101 but require significant resources, technical complexity and ongoing maintenance.
• Unified employment APIs offer the advantages of custom integrations without the need for in-house development. They aggregate connectivity to multiple HRIS and payroll systems, simplifying data transfer, ensuring compliance and reducing costs.

Related: Employers need help implementing SECURE 2.0: Advocacy group asks IRS for guidance

To prepare for SECURE 2.0 compliance, it is essential to evaluate these data transfer options, implement the best solution for your organization, validate and test it internally and, finally, roll it out to users while monitoring performance and making adjustments if necessary.

How retirement advisors can help employers navigate SECURE Act 2.0

To plan ahead and stay compliant with SECURE Act 2.0, employers and plan providers would be wise to enlist the expertise of a professional retirement advisor. Among the many benefits of an advisor, the following are most impactful when it comes to meeting Act requirements. Advisors can:

• Provide valuable insights into critical SECURE 2.0 deadlines, ensuring businesses stay on track and avoid challenges.
• Keep employers informed about provider compliance plans, aiding in the selection of suitable retirement plans.
• Identify specific provisions that require employer action for compliance, safeguarding businesses from fines and legal consequences.
• Educate employers about potential risks and penalties, encouraging proactive steps towards meeting Act requirements.
• Recommend tools to help providers develop the internal infrastructure and processes needed to adhere to the Act.
• Advise organizations about how to take advantage of the expanded small business tax incentives included in 2.0, enabling them to make informed decisions for maximum financial benefit while ensuring compliance.

Ultimately, retirement advisors can be valuable partners for organizations as they look ahead to SECURE 2.0.—helping businesses to confidently tackle the Act's requirements and potential pitfalls before the Act goes into effect. After all, preparing for 2.0 isn't something that can wait until the last minute, so make a plan now and secure the tools and support resources you'll need to ensure a compliant retirement landscape—for your business and employees alike.

SECURE Act 2.0 introduces important changes to retirement plans, aiming to improve Americans' ability to save for retirement. With the nation facing a retirement crisis and the average retirement savings in the United States amounting to only $65,000, the need for accessible opportunities to save is evident.

However, the reliance on manual processes poses significant challenges for organizations, increasing the risk of errors and non-compliance. For employers and plan providers, this means it's essential to begin planning ahead now—enlisting the support of a retirement advisor and implementing technology to automate synchronization of contribution changes, eligibility tracking and tax treatment adjustments.

Whether opting for custom integrations, unified employment APIs or anything in between, the goal for organizations should be to create seamless integrations between their systems of record, in effect, streamlining workflows, reducing the risk of errors, minimizing the burden on HR personnel and ensuring accurate and timely compliance with SECURE Act 2.0.

Ansel Parikh is COO and cofounder of Finch,