There are more than 90 provisions to the Act. Some are optional for plan sponsors, some are mandatory, some are already in effect, and some don’t go into effect until 2026. The following are some notable provisions:
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Some employees do not participate in long-term (retirement) savings because they do not have enough short-term savings for emergencies. There are two optional provisions that will be available starting January 1, 2024, for these situations:
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Penalty-free withdrawals for emergency expenses for non-highly compensated employees, up to $1,000 per year.
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Pension-linked emergency savings account withdrawals for non-highly compensated employees. Employees can make after-tax Roth contributions into these accounts that can be accessed without penalty for emergencies.
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Student loan payments can be eligible for employer matching contributions. Many younger workers cannot save for retirement because of the burden of student loans. This provision allows employers to make a matching contribution to an employee’s retirement savings plan if the employee is making student loan payments (optional, beginning January 1, 2024).
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Long-term, part-time workers will be eligible after working 500 hours per year to participate in an employer’s retirement savings plan after two consecutive years, effective for plan years beginning January 1, 2025 (mandatory). Previously, long-term, part-time workers were eligible to participate in employer-sponsored plans after three consecutive years starting January 1, 2024 (mandatory).
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Automatic enrollment and auto-escalation are required effective January 1, 2025, for new plans established after December 29, 2022. Many plans already include these features, but this would require it for all plans. Of course, employees can always opt out of saving or auto-escalations.
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Employers can provide “de minimis,” or small, incentives to employees to participate in saving for retirement. While the Act doesn’t define a “de minimis” amount, it uses the example of “low-dollar gift cards” (optional, effective January 1, 2023).
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Penalty-free withdrawals for individuals experiencing terminal illnesses (optional, effective December 30, 2022) or domestic abuse (optional, starting January 1, 2024).
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Incentives for small businesses to set up retirement plans (optional, beginning January 1, 2023).
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Reliance on employee certification for hardship distributions (optional, for plan years beginning after December 29, 2022).
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Increased the age for required minimum distributions (RMDs). Effective January 1, 2023, the required age is 73, if they were not age 72 by December 31, 2022; the age will increase again, to 75, if they are not age 73 by December 31, 2032 (mandatory).
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Increased catch-up contributions for people ages 60-63 (optional, effective January 1, 2025).
Most changes will require amendments to your plan documents. We suggest you work with your retirement plan advisor and plan service provider to review required changes and those that you may wish to make to benefit your employees.