SECURE 2.0: New ways to boost 401(k)s and support employees’ unique needs

At the start of a new year, Americans are looking ahead to how they can manage their anticipated and unexpected financial needs while paying it forward to their future selves. Many workers are looking for support from their employers in navigating planning for these longer-term goals, like retirement, through financial benefits. A recent survey Betterment conducted of 1,000 US full-time workers found that 70% of employees view financial wellness benefits as more important to them now than they were a year ago, and 60% would be enticed to leave their job for an employer that offers better financial benefits.

This shows employees are more likely to jump ship if not offered the benefits they’re looking for, making employer’s solutions more important than ever.

Fortunately, in the ever-evolving landscape of retirement planning and employee benefits, the SECURE 2.0 Act marks one of the biggest advances in the retirement savings space in recent memory. Many of the provisions going into effect this year create more opportunities for employers and employees to work together to build a smoother path toward retirement security for all.

Let’s take a look at several provisions in SECURE 2.0 activating in 2024 that are designed to benefit employees, and how employers can take advantage based on the unique needs of their workers.

#1: 401(k) match on student loan payments

Savers have felt the challenges of balancing the competing priorities of student loan debt while trying to proactively save for retirement. Our survey also found 64% of borrowers said their student debt has impacted their ability to save for retirement.

One of the groundbreaking features of SECURE 2.0 is the introduction of matching into an employer-sponsored retirement plan on an employee’s student loan payments. For example, if an employee allocates 5% of their salary to repay student loans, the employer can match that amount into the employee’s 401(k) account. This effectively helps the employee tackle student loan debt while simultaneously building retirement savings.

This innovative provision aligns with the changing financial priorities of the workforce, particularly Gen X and Millennials who are burdened by the highest percent of student loan obligations of any age group, and also comprise three quarters of the workforce. By allowing employers to offer a 401(k) match on dollars their employees use to repay their loans, we could see a sharp increase in the number of savers. Employers can implement this benefit today, so it’s important to look for a provider who can support helping savers’ preparations for retirement.

#2: 529 funds rolling to a Roth IRA

While 529 accounts are a smart, tax-advantaged way to save for college, Americans are not always utilizing this offering. Our survey data found that a quarter (26%) of employees are currently saving money for education expenses – but less than half (45%) are currently using a 529 education savings plan to do so. This may be happening because individuals are not aware of this savings vehicle, or they worry about what the intended beneficiary will do with excess funds stuck in the account.

With this new provision, beneficiaries can roll unused 529 funds into a Roth IRA tax-free – up to the $35,000-lifetime cap. This is an ingenious way to empower individuals to repurpose unused 529 funds for retirement savings. However, our data found that 77% of employees currently saving for education said that they were not aware of the new provision, even if 57% say this makes it more attractive to use a 529.

Employers have an opportunity to educate their employees on this new provision and explain the advantages that a 529 plan can offer when planning for college. By doing so, they are showing employees that they not only understand how education and retirement planning are interconnected facets of financial planning but also that they want to be a resource on new regulations in the benefits space.

#3: Penalty-free withdrawals for domestic abuse survivors

Over the last few years, legislation introduced flexibility for participants to access money from their retirement plan accounts for unforeseen emergencies such as Coronavirus-related distributions. SECURE 2.0 continues this trend by allowing penalty-free withdrawals in cases of domestic abuse.

The new law allows domestic abuse survivors to withdraw the lesser of $10,000 or 50% of their vested account balance, without being subject to the 10% early withdrawal penalty. While the distribution must be taken within 12 months of the domestic abuse incident, survivors can pay the money back over the following t years and may receive a refund for income taxes on the amount repaid.

Related: SECURE 2.0 rolls out new student debt (and education) benefits in 2024

For employers who choose to adopt this provision, this is a critical tool that allows employers to remove barriers and support employees who are going through an incredibly difficult time. Employers can coordinate with their retirement plan providers to amend their plans to allow plan participants to take these early withdrawals.

The SECURE Act 2.0 represents a landmark in the evolution of retirement planning, introducing provisions that reflect the dynamic needs and challenges of the modern workforce. By proactively integrating these new provisions into their benefits packages and fostering a culture of financial well-being, employers can contribute to the financial empowerment and long-term security of their current and future employees.

Harlyn Croland is Head of Business Operations & Strategy at Betterment at Work.