Consolidated Appropriations Act: What Secure Act 2.0 Means for Retirement Plans

The Consolidated Appropriations Act, which includes Secure Act 2.0, was signed into law on December 29, 2022. This key piece of legislation builds upon 2019’s SECURE Act and aims to improve retirement plans. Below is a summary of key provisions.

Incentivizing people to save more

• Expands automatic enrollment in retirement plans – Secure Act 2.0 requires companies that are at least three years old, with more than ten employees, and with 401(k) or 403(b) plans, to automatically enroll all new, eligible employees at a 3% contribution rate that would increase by 1% annually until it reaches 10%. Employees can opt-out, and existing plan members wouldn’t have to change anything.
• Increasing catch-up contribution limits – Starting in 2023, participants aged 50 or over can contribute an extra $7,500 annually to their 401(k). Starting in 2025, this amount increases to $10,000 annually for participants aged 60 to 63. In addition, catch-up contributions will be indexed for inflation. Lastly, effective January 1, 2024, catch-up contributions for participants earning more than $145,000 must be made to a Roth account.
• Promotes Saver’s Match – This match replaces the existing Saver’s Credit. Beginning in 2027, low-to-medium income employees will be eligible for an annual matching federal contribution of $2,000 into their retirement account. This match will phase out based on income and tax-filing status.
• Long-term, part-time Employees – The original SECURE Act required part-time employees who worked between 500 and 999 hours for three consecutive years to be eligible to participate in their company’s retirement plan. The new Secure Act 2.0 reduced this to two years.

Improve retirement plans

• Extra benefits to student loan borrowers – Beginning in 2024, employers can contribute to a workplace retirement plan on behalf of employees who are paying student loans instead of saving for retirement. Secure Act 2.0 allows student loan payments to count as retirement contributions for the purpose of qualifying for a company match to a retirement account.
• Delay required minimum distributions (RMDs) – Previously, the age at which investors would have to withdraw from their retirement accounts was 72. Secure Act 2.0 increases the RMD age to 73 in 2023 and 75 in 2033. The pre-death RMD for Roth 401(k) accounts will also be eliminated in 2024.
• Emergency savings – Secure Act 2.0 allows participants to withdraw up to $1,000 per year from their retirement savings for emergencies without paying the 10% penalty for early withdrawal if they’re under 59 1/2 years old. Employers could also allow employees to set-up emergency savings accounts through automatic payroll deductions (these contributions are capped at $2,500).

Lower costs for small businesses

• Tax credits for small businesses – Secure Act 2.0 increases the three-year small employer startup tax credit from 50% to 100% of plan start-up costs for companies with up to 50 employees, with a per-employer cap of $5,000.
• Multiple employer plans (MEPs) - The start-up tax credit is also extended to employers who join MEPs based on the year they join rather than if they only join a new plan.
• Tax credit for employer contributions – Small businesses with up to 100 employees could receive a tax credit based on their employee matching or profit-sharing contributions. This credit is capped at $1,000 per employee and phases out over five years. Businesses with 51 to 100 employees face further reductions.

We’re All In

At EisnerAmper, we are carefully watching new legislation as it unfolds. We will communicate with clients as changes are enacted that could affect their retirement plans. Should you have any questions, please do not hesitate to contact your advisor.