Articles

SECURE Act 2.0 Impacts on Retirement Plans

Shared by FEAT Member Jack Clements and The Clements Group/Hub International 

By Jack Clements

SECURE Act 2.0 became law on Dec. 23, 2022, and will impact almost all private sector retirement arrangements for small and medium-sized businesses in Tucson, Ariz. — and across the U.S. 

Here are nine key provisions of the federal regulation and when each becomes effective:

1. New ROTH Treatments for Employer Contributions
   Employers can now allow employees to choose how they want to receive employer matching contributions – on a pre-tax or Roth (after-tax) basis. Those who select Roth can make withdrawals in retirement tax-free.
   - Effective Dec. 22, 2022
   
   
2. Credit for Small Plan Start-Up Costs
   SECURE 2.0 enhances tax credits for small businesses that offer a new 401(k) plan or add an automatic enrollment feature to an existing plan. It increases the three-year small business startup credit from 50% to 100% of administrative costs for employers with up to 50 employees. Small businesses also can take advantage of a new tax credit for employer contributions as a percent of contributions up to $1,000 per participant.
   - Effective for taxable years beginning after Dec. 31, 2022
   
   
3. Starter 401(k) Plans and Multiple Employer 403(b) Plans
   Under SECURE 2.0, employers that do not sponsor a retirement plan can offer a deferral-only “starter 401(k) plan” or “safe harbor 403(b) plan.” Employees are automatically enrolled into these plans at 3%-15%, and deferral limits are equal to those of IRA contribution rates. Employers can also join other employers in a multiple employer plan (MEP) or pooled employer plan (PEP).
   - Effective for starter plans in plan years beginning after Dec. 31, 2023; Dec. 31, 2022 for MEPs
   
   
4. Required Minimum Distribution Age Increase
   This provision increases the required minimum distribution (RMDs) age from 72 to 73 and then again in 2033 to 75, while also eliminating RMDs for Roth 401(k)s and 403(b)s. The tax for failure to take an RMD is also reduced from 50% to 25%. In addition, if the RMD is corrected within a two-year window, the penalty is further reduced to 10%.
   - Effective Jan. 1, 2023; increases begin Jan. 1, 2033
   
   
5. Student Loan Contributions
   This provision permits employers to make matching contributions to 401(k), 403(b), and 457(b) plans based on “qualified student loan payments.” This gives individuals the opportunity to pay down student loan debt without losing out on employer contributions.
   - Effective for contributions made for plan years beginning after Dec. 31, 2023
   
   
6. Emergency Savings Accounts (ESAs)
   This provision makes it easier for workers to set aside emergency funds for unexpected expenses, allowing them to withdraw funds four times annually without penalty. Employers can offer ESAs to non-highly compensated employees via automatic or affirmative enrollment at up to 3% contribution, with a max annual limit of $2,500. Unused funds can be rolled into employees’ Roth or IRA.
   - Effective for plan years beginning after Dec. 31, 2023
   
   
7. Mandatory Automatic Enrollment for Private Sector 401(k) and 403(b) Plans
   Starting in 2025, employers with new 401(k) and 403(b) plans must automatically enroll their employees at minimum contribution rates of 3%-10%, and automatically increase the rate 1% each year up to 15%. Note: There are exceptions for pooled employer plans, multiple employer plans (MEPs), government or church plans, new businesses, and businesses with less than 10 employees.
   - Effective for plan years beginning after Dec. 31, 2024
   
   
8. Greater Catch-Up Contribution Levels
   SECURE 2.0 increases the limits on catch-up deferrals for participants aged 60-63 from $6,500 to the greater of $10,000 or 150% of the age 50 catch-up limit to take effect in 2024. If earnings are more than $145,000 annually, catch-up contributions should be made on a Roth basis.
   - Effective for taxable years beginning after Dec. 31, 2024
   
   
9. Long-term Part-Time Employees
   SECURE 2.0 requires employers to offer 401(k) participation to part-time workers who have worked at least 500 hours over two consecutive years and extends the coverage rules to ERISA 403(b) plans.
   - Effective for plans beginning after Dec. 31, 2024

Although many of the provisions within SECURE Act 2.0 will not go into effect for a few years, Tucson-area employers searching for top talent will want to start implementing the changes as soon as possible.

About the author

Jack Clements, CPA, CIC, is based in Tucson and is the President of Arizona Operations for global insurance brokerage Hub International.  Jack joined HUB in 2020 as part of the Clements Insurance and HUB Southwest acquisition. He has been in the insurance industry since 1989 and manages a portfolio of challenging and complex cannabis, healthcare, real estate and construction accounts. He is a member of HUB Southwest’s Executive Management Team and heads the operations for Hub’s Arizona offices.