Key Insights on the SECURE 2.0 Act

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The SECURE 2.0 Act of 2022 introduces significant updates to retirement plans, aiming to increase coverage and allow participants to save more effectively for retirement. Here’s what plan sponsors need to know about these mandatory and optional provisions.

Mandatory Provisions

  1. RMD Delays
    • Starting in 2023, required minimum distributions (RMDs) are delayed to age 73 and will further extend to age 75 by 2033, allowing individuals to save longer.
  2. Elimination of Pre-Death RMDs for Roth Accounts
    • Effective in 2024, Roth accounts in plans are no longer subject to pre-death RMDs, aligning them with Roth IRAs.
  3. Enhanced Long-Term Part-Time Eligibility
    • From 2025, part-time employees with two consecutive years of 500 hours of service can participate in 401(k) and ERISA-governed 403(b) plans, reducing the previous three-year requirement.
  4. Catch-Up Contribution Changes
    • Higher catch-up contributions of up to $10,000 for individuals aged 60-63 start in 2025. From 2026, all catch-up contributions must be Roth contributions unless the participant earned less than $145,000 in the prior year.

Optional Provisions to Increase Savings and Coverage

  1. Small Financial Incentives
    • Sponsors can offer minor financial incentives to encourage plan participation, particularly effective for plans without automatic enrollment.
  2. Student Loan Match
    • Beginning in 2024, sponsors can match employee contributions towards student loan repayments, aiding those hampered by student debt.
  3. Saver’s Match
    • Starting in 2027, a federally funded match will be available for low-income workers, providing up to a 50% match on contributions up to $2,000.

Optional Provisions to Meet Participant Needs

  1. Disaster Distributions
    • Penalty-free disaster distributions of up to $22,000 and loans of up to $100,000 are available, effective for disasters occurring on or after January 26, 2021.
  2. Emergency Withdrawals
    • From 2024, participants can take penalty-free emergency withdrawals of up to $1,000 once every three years.
  3. Pension-Linked Emergency Savings Accounts (PLESA)
    • These accounts allow contributions up to $2,500 annually, invested on a Roth basis, and can be withdrawn penalty-free for any reason.
  4. Long-Term Care Premium Payment
    • Starting in 2026, plans can allow penalty-free distributions for long-term care insurance premiums up to the lesser of $2,500 or 10% of the participant’s vested balance.

Simplifying Administration

  1. Self-Certification for Hardships
    • Effective immediately, participants can self-certify for hardship withdrawals, streamlining the process.
  2. Increased Cash-Out Limits
    • From 2024, the limit for cash-out distributions without participant consent increases to $7,000.
  3. Disclosure Improvements
    • SECURE 2.0 reduces duplicative notices and enhances clarity in participant fee disclosures, including eliminating certain annual notices for nonparticipating employees.

Implementation Deadlines

Plan sponsors have until the last day of plan years beginning after January 1, 2025, to amend plans to comply with SECURE 2.0, with an additional two years for collectively bargained and governmental plans.

The staggered implementation deadlines of SECURE 2.0 provide a clear guide for plan sponsors. Evaluating and adopting the relevant provisions can enhance retirement plan offerings, improve participant outcomes, and streamline plan administration. For more detailed guidance, sponsors should consult with their legal and financial advisors to ensure compliance and optimal benefit from these changes.

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