Is SECURE 2.0 closing the retirement gap for Americans?
The law’s student loan matching provision has received high adoption rates from plan sponsors, says Ron Ulrich, ADP’s VP of Retirement Services, who discusses key 2024 and 2025 provisions that employers need to take advantage of.
We talked to ADP’s VP of Retirement Services Ron Ulrich for his specific insights on the law overall and how effective the rollout has been in 2024. He has shed insight how the legislation is designed to “close the retirement savings gap” and whether or not that has been a reality since it officially went into effect at the beginning of this year.
Q: How effective has SECURE 2.0 since it went into effect about 18 months ago?
A: It’s hard to say for sure how impactful it’s been so far overall, but definitely one of the big “success stories” when it comes to the SECURE 2.0 rollout has really been enhanced tax credits. This creates even more tax incentives for small organizations, to create a plan for their employees. The enhanced tax credits allow employers to start up their own plans and use the tax credits to offset certain plan related costs.. We’ve also seen the “student loan matching” provision receive high interest and adoption rates from plan sponsors. We believe this plan feature will become a useful tool, specifically for talent attraction and retention in a crowded labor market. Again, however, I’d caution that SECURE 2.0’s full impact is still unfolding as more provisions take effect.
Q: Is SECURE 2.0 beginning to close the retirement savings gap?
A: It’s tough to say right now if SECURE 2.0 is directly responsible for closing the retirement savings gap. Some aspects of the legislations that we believe will help more Americans pave a path toward retirement readiness:
- Automatic enrollment— 401(k) or 403(b) plans established on or after Dec. 29, 2022, are required to include an automatic enrollment feature beginning in 2025.
- Expanded catch-up contributions— The annual catch-up contribution amount for participants ages 60–63 is increased to 150% of the regular limit on catch-up contributions, if higher, beginning in 2025.
- Required minimum distributions (RMDs)— The age for required minimum distributions increased from 72 to 73 in 2023 and goes up to 75 in 2033. In addition, the penalty for not taking an RMD is reduced to 25% (in some cases 10%).
Q: What are the key 2024 optional provisions that employers need to take advantage of?
A: SECURE 2.0 legislation introduced over 90 provisions designed to help improve retirement readiness, including:
- Employer matching for employees’ student loan payments within their retirement plans
- Expedited eligibility for long-term, part-time workers to participate in a plan
- Emergency withdrawal provision
Q: What key SECURE 2.0 provisions go into effect in 2025 that employers need to be compliant with?
A: A few 2025-specific provisions include:
- Expanding automatic enrollment in retirement plans, which requires (less subject to an exception) auto-enrollment and auto-escalation for all 401(k) and 403(b) plans
- Improving coverage for part-time workers, which reduces to two years (from three years) the requirement to allow long-term part-time workers to participate in a company’s 401(k) plans
- Retirement savings “lost & found,” which requires the Department of Labor to create a national online “lost & found” database for Americans’ retirement plans
Related: Navigating SECURE 2.0 confusion: collaboration between SMBs and third-party administrators
Q: How does SECURE 2.0 empower small businesses to launch a retirement program for employees?
A: One of the ways SECURE 2.0 makes it easier for small businesses to offer retirement plans is by creating starter 401(k) plans. Another way is the “contribution credit” that came along with SECURE 2.0, which allows small employers to make a contribution to their employees and get a tax credit up to $1,000 per employee. We believe this will further incentivize small businesses to implement a retirement plan.