5. A new matching rule for employees who hold student loans.
Employers will be able to adopt a new matching rule that acknowledges that some of their employees who are repaying large student loans are unable to make retirement plan contributions as well. This new rule would allow companies to count an employee’s student loan payment as a retirement match — and make a matching contribution into their retirement plan for that employee.
6. Emergency savings provision.
The Senate Finance Committee’s research indicated that nearly 60% of Americans who have a retirement account and have no emergency savings have had to make withdrawals from their retirement accounts.
As a result, the act would create an emergency savings account within retirement accounts that can hold up to $2,500. A participant can pull out $1,000 per year for emergencies tax-free — and they can repay those withdrawals to rebuild their emergency savings account in the future. These funds would be after-tax (like a Roth) so contributions would be after-tax, and distributions would be tax-free.
7. Changes to 401(k) catch-up contributions.
Catch-up contributions will be increased significantly starting in 2024, but the rules will be more complex. Employees who are between 60 and 63 years old will be allowed a larger catch-up contribution of the greater of $10,000 or 150% of the “standard” catch-up contribution amount for 2024. (That amount is $7,500 for 2023.) The limit will be adjusted annually for inflation starting in 2026.
Optional change: The employer match can go toward an after-tax Roth 401(k) portion.
More complexities: If a participant is at least 50 years old and earned more than $145,000 in wages, any catch-up contributions to their retirement plan will only be allowed to go into their after-tax Roth account. If the person is at least 50 years old and makes less than $145,000, they can continue to make pre-tax catch-up contributions. Retirement plan platforms will need to add intelligence and processes into their systems to comply with this new rule, which is why there is a delay until 2024 to give organizations time to update their systems.
8. Changes to part-time employees’ plan eligibility.
Part-time employees’ eligibility to participate in a company’s retirement plan has been moved ahead from three years to two years, and the requirement for hours worked per year has been decreased from 1,000 to 500 hours a year.
Taken altogether, the Secure 2.0 Act’s changes could have a meaningful effect on your company and your employees’ retirement security. There are additional automatic enrollment and automatic escalation features that will be required for new plans in 2025, which will require additional planning.
Schedule a meeting with your retirement plan advisor and third-party administrator to see how Secure Act 2.0 affects your plan and what changes to make in your plan, and to set up a strategic plan for changes that will need to be made in the next two or three years.
Nick Strain, CFP, CPWA, CEPA, AIF, is a senior wealth advisor and Chair of the Wealth Advisory Committee at Halbert Hargrove.
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