SECURE Act 2.0, passed by Congress in December 2022, includes mandatory and optional changes to qualified retirement plans. SECURE is an acronym for Setting Every Community Up for Retirement Enhancement, and it builds upon SECURE 1.0, passed in 2019. As explained in this previous Employers Council article, the goal of the Act is to take steps toward addressing the current retirement crisis in which many Americans do not have enough money saved for retirement. Many of the provisions took effect last year or on January 1, 2024, while others kick in next year or in 2026.
As the first quarter of 2024 comes to a close, employers should review which provisions of SECURE they may need or want to implement in their retirement plans. Of the 90 provisions of SECURE 2.0, here are some for employers to consider:
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As of January 1, 2024, long-term, part-time employees are eligible to participate in an employer’s retirement savings plan after working 500 hours per year for three consecutive years (SECURE 1.0). Employers are not required to contribute a company match for these part-time employees but may elect to do so. Keep in mind that effective January 1, 2025, long-term, part-time employees will be eligible to participate after two consecutive years of working 500 hours.
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In an effort to improve retention, some organizations are treating student loan payments as if they were elective deferrals, enabling the employer to provide a matching contribution to the employee’s retirement plan account. This optional provision took effect on January 1, 2024.
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To reduce the administrative burden of managing small-dollar accounts for terminated employees, some qualified retirement plans have a cash-out provision when employees leave the organization. Plans can set their own threshold, from $0 to $7,000 (up from $5,000).
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The age for required minimum distributions (RMDs) has increased to 73. While optional, most plans follow the IRS defined RMD age.
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Many employees do not have cash savings available for emergency expenses, such as a car repair, emergency room visit, or a refrigerator that stops working. Plan sponsors may want to consider these options.
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Allow penalty-free withdrawals of up to $1,000 per year for emergency expenses for non-highly compensated employees (only one emergency distribution every three years, unless repayment is made sooner).
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Offer the option to allow employees to establish emergency savings accounts linked to qualified plans. Employee after-tax contributions are treated as elective deferrals for employer matching contributions.
We recommend that you discuss the SECURE options and requirements with your retirement plan advisor and plan services administrator. Changes may require amendments to your plan documents.
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