3 key SECURE 2.0 provisions go into effect in 2024: What plan sponsors need to know

With the federal freeze on student loan repayments now expired, over 43 million Americans resumed making their monthly payments in October. As inflation and the rising cost of goods also put a squeeze on employees’ finances, for many this means having to make tough choices like sacrificing their retirement contributions to make student loan payments.

Fortunately, help is on the way. New provisions in the SECURE 2.0 Act will take effect starting in January 2024 that can alleviate some of the stress employees face when trying to balance their current needs with their future financial security. While it’s viewed as mostly beneficial for employees, there are several benefits for employers as well.

Here’s what you need to know about how your company and your employees can take advantage of these new options.

1. Matching student loan payments with 401(k) contributions

There’s a bit of confusion around this provision, as some HR leaders may think it means the company is paying off employees’ student loans. In reality, the employee makes their own student loan payments, and SECURE 2.0 gives employers the option to make matching contributions to the employee’s 401(k) according to the terms of their current plan, even if the employee is not contributing to it. For example, a company that matches 100% of employees’ 401(k) contributions up to 4% of their salary can contribute that 4% match, supporting employees who are struggling to balance student loan payments with saving for retirement.

This is a huge advantage for employees because it helps them save for the future while still meeting current obligations and can be an enticing benefit that helps to attract and retain talent. While this may benefit some employees who haven’t been contributing to their 401(K) at all, it’s most likely going to help those who haven’t been maxing out their contributions and instead leaving a percentage point on the table—contributing only 3% instead of 4%, for example. That means the cost for the employer is negligible or the same as if the employee were making full contributions, so there’s little added expense for this very attractive benefit.

2. Emergency savings opportunities

Last year, 1 in 5 employees borrowed or withdrew from their retirement savings to cover current expenses, which can hurt their finances down the road. A new SECURE 2.0 provision may eliminate that by allowing employees to make pre-tax payments into an emergency savings account that’s linked to their retirement plan. Employees can accrue up to $2,500 tax-free in the account for an emergency and withdraw up to $1,000 without penalty. Any amount over $2,500 that accumulates in the account automatically rolls over into their retirement plan.

This is a fantastic option that creates a pathway to retirement participation, especially for lower-wage workers who have typically opted out or unenrolled in retirement programs because of cash flow challenges. This program bridges the gap between short-term needs and long-term goals and helps employees feel more secure and supported by their employer.

3. 529 college savings to IRA rollover

Even if your company doesn’t offer a 401(k) plan, a new provision allows 529 college savings plan beneficiaries to roll over those funds into a Roth IRA. While there are some limits and provisions (e., a $35,000 lifetime cap, 529s must be open 15+ years and rollover amounts can’t exceed the annual contribution limit for Roth IRAs), this is perfect for those who didn’t use all their 529 funds or who chose a trade career instead of a college education.

Offering employees this option – either for their own 529 funds or for ones they set up for their children – is a powerful opportunity to give young people a head start on saving for retirement, encourage employees to take action toward securing their financial future and open up generational wealth transfer opportunities for people who otherwise wouldn’t have them.

Offering these new financial well-being benefits in the coming year can help to boost employee retention and create a competitive benefits package to attract new talent — but there are some steps you should take now to prepare for a successful implementation. Here are some tips:

• Establish a baseline for employees’ needs and financial well-being goals. Before you even start to implement new programs, make sure you’re offering ones your employees want and will take advantage of. The only way to know for sure is to ask them through surveys and feedback forms. Also, make sure you’re offering a broad spectrum of options that serves employees at every age, life stage, and financial situation.
• Keep an eye on trends. If you see employees beginning to deviate from 401(k) participation or an increase in loans against their funds or early withdrawals, consider early intervention. Reach out to make sure they’re aware of programs you offer, like emergency savings funds or student loan matching, so they don’t have to jeopardize their future.
• Verify student loan payments. In order to receive the 401(k) match, employees must prove they’re making (or have made) student loan payments. While the IRS doesn’t technically require verification this year, they likely will in the near future, so it’s best to get a system in place —there’s a lot of money on the line and it might not be worth the risk. Some companies plan to address this concern by making a single “catch-up” contribution annually based on statements provided by employees, but that can be a logistical nightmare for large companies. Consider getting started now with a partner who can provide this validation service so you’re ahead of the mandate.
• Make auto-enrollment the default. To encourage participation and engagement with these programs, you’ll need to reduce any friction in getting employees started off on the right foot. Auto-enrollment is the best way to ensure maximum participation with little effort.
• Communicate consistently. Your outreach around these benefits shouldn’t end after onboarding or open enrollment. Employees need frequent reminders about the benefits you offer, not only because they may forget, but also because their life circumstances change and their priorities may shift throughout the year. Frequent reminders can maximize participation.

Related: SECURE 2.0’s student loan match takes effect in 2024: Are you up to speed?

While SECURE 2.0 is the most groundbreaking retirement legislation we’ve seen in 30 years, there is much more work to be done and we’re already seeing a push for SECURE 3.0.

Given the current economic challenges, companies can get ahead of the curve by using these programs as a competitive differentiator when it comes to attracting and retaining talent. By helping employees balance their short- and long-term financial goals and reduce the impact of financial stress on their mental and physical well-being, taking advantage of SECURE 2.0 can also have substantial bottom-line benefits that create significant ROI.

Barrett Scruggs is VP of Workplace Financial Well-Being at SoFi at Work.