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SECURE 2.0: Everything Retirement Plan Fiduciaries Need to Know
Last Updated: February 22, 2023
The Industry Can Improve
It’s no secret that not enough of the American workforce is saving adequately for retirement. While retirement plan fiduciary committees are uniquely positioned to make a difference by getting employees on track for retirement, the hard truth is that not enough 401(k)s are currently managed for this goal. This is why so many workers are off track.
It’s an ongoing crisis and traditional plan management must change so that our employees can retire on time, with dignity. When the private retirement system doesn’t meet the needs of the American workforce, you can expect the government to fill the void through its public policy responsibilities.
Enter Scene, Congress’ SECURE 2.0 Act.
Congress just passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2022. SECURE 2.0 addresses many of the issues that were not a part of the original SECURE Act, with the hopes of enhanced benefits to employees (and employers) and increased retirement savings opportunities. There are many provisions in the new legislation relating to employer plans that fiduciaries should be aware of.
ü Here are the key takeaways you should keep on your radar:
● Automatic Features:
o Automatic Enrollment: All news plans will be required to automatically enroll new participants at a minimum of 3% with a maximum of 10%.
o Automatic Escalation: All new plans will be required to automatically increase participant contributions 1% every year up to a minimum of 10% and a maximum of 15%.
o Who Does it Apply To? Auto Features apply to any plan starting after 1/1/23, but do not have to be implemented until any plan year that starts after 12/31/24
● Employee Contributions:
o Roth Catch-up Contributions: All catch-up contributions will be required to be Roth contributions, effective 12/31/23.
▪ Catch-up contributions are available for participants age 50+
▪ Participants who make less than $145,000 are exempt
o Special Catch-up Contributions: Allows for an increase to the catch-up limit, effective 12/31/24 for participants meeting the age requirements.
▪ Increases the catch-up limit from $7,500 to the greater of 150% of the original catch-up limit or $10,000
▪ Applies to participants between ages 60-63
o Emergency Savings Account: Allows for employees to save into an Emergency Savings Account through employer, available any time after 12/31/23.
▪ Available to non-highly compensated employees
▪ Employees can contribute up to $2,500 into the account every year
▪ All contributions are treated as Roth for contributions/distributions
● Employer Contributions:
o Roth Matching Contributions: Allows for employers to make matching Roth contributions into an employee’s account, available after 1/1/23.
▪ Available to any plan that wishes to implement
o De Minimis Financial Incentives: Allows for employers to offer small financial incentives to plan participants, applicable for all plans after 1/1/23.
▪ This can be a great tool to increase participation in the plan!
▪ Expenses cannot be paid out of plan assets
o Student Loan Match: Allows for employers to match payments that employees are making towards their student loans, available to start after 12/31/23.
▪ This is available for participants who are paying off their student loans instead of saving into the plan.
● Required Minimum Distributions (RMDs):
o Increases RMD age to 73 years old in 2023 and 75 years old in 2033.
o Penalty for failure to take distribution is decreased from 50% to 25%, effective 1/1/23.
o Roth Account Balances in employer-sponsored plans will no longer be subject to RMDs.
o Spouses of deceased employees can elect how they would like to be treated for RMD purposes.
● Distribution Changes:
o Effective 2023
▪ Hardship Distribution will now be up to the participant to self-certify the need
▪ Terminally Ill participants can take penalty free distributions
▪ Sets up provisions in the event of a Federally Declared Disaster
o Effective 2024
▪ Victims of Domestic Abuse can take penalty free distribution
▪ Participants can withdraw up to $1,000 per year for Emergency Circumstances
▪ Force-out limits for small accounts increase from $5,000 to $7,000
● Other ‘Need-To-Know’ Highlights:
o Collective Investment Trusts
▪ Although the SECURE 2.0 Act permits CITs in 403(b) plans, the House Committee for Financial Services did not allow securities changes to go through because they had concerns about “Consumer Protections.”
▪ It is still a hot topic, but is not available at the time
o Eligibility: SECURE Act 2.0 decreases the timeframe established by the original Secure Act down from 3 years to 2 years for long-term part-time employees
o Retirement Plan Lost and Found: Allows participants search for their previous plans if they forgot them at a previous employer
o Automatic Portability: Allows employers to roll over participant balances from default IRAs into the participant’s new employer’s plan
o Savers Match: Replaces the Saver’s Credit with a Saver’s Match
o Direct Rollover Forms: The Department of Labor is tasked with creating a simplified and standardized direct rollover form
It’s critical that the retirement plan system works in employees’ favor. With SECURE 2.0, the government is acknowledging and addressing the retirement crisis through public policy, but it takes all of our industry to make a great impact! At PCI, we believe that the 401(k) should be managed for the purpose of getting employees on track. Your plan adviser should be accountable to manage the plan to accomplish this.
If you need help navigating the new SECURE 2.0 Act for your plan or lack confidence you have the right information, PCI can help. With nearly 30 years of experience, our team of experts can confidently help you get your participants on track!
The information provided in this article is not intended to be legal advice. Neither Pension Consultants, Inc. nor any of its employees engage in the practice of law. If assistance is needed in making legal determinations, counsel in the appropriate jurisdiction should be retained, and Pension Consultants, Inc. may continue to provide consulting services, if needed. Consult a competent professional person for appropriate legal, financial or investment advice.
This article represents a selective summary of certain provisions included in the Secure 2.0 Act passed by the U.S. Congress and signed into law on December 29, 2022. A complete summary of the Act can be found at https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf
Pension Consultants, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser, located at 300 S. Campbell Ave., Springfield MO, 65806. For questions or more information contact us at 417.889.4918.
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