Frank T. Ardito, CPA
Vice President & Director of Employee Benefit Services

Significant changes to workplace retirement plans were enacted in the waning days of 2022 as the SECURE Act of 2022 – also known as “SECURE 2.0” – was signed into law. The SECURE 2.0 impact on retirement plan sponsors will be significant and in some cases immediate.

SECURE 2.0 – a sequel to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 – further expands access and seeks to boost participation in retirement saving plans among all employers. The Act features dozens of provisions that will take effect over the next decade.

This is a large legislative package that will impact plan sponsors and participants alike. Following are some of the key provisions of SECURE 2.0 that 401(k) plan sponsors should be aware of:

Reduction in excise taxes on certain accumulations – The legislation reduces the penalty for failure to take RMDs from 50% to 25%, with a further reduction to 10% if the RMD failure is corrected in a timely manner.
This provision became effective on December 29, 2022.

Employees may self-certify that hardship criteria are met – Allows employees to self-certify that they have had an event that constitutes a hardship or unforeseeable emergency for purposes of taking a hardship or emergency withdrawal.
Effective for plan years beginning after December 29, 2022.

Optional treatment of employer matching or nonelective contributions as Roth contributions – Allows plans to provide participants with the option of receiving matching and qualified nonelective contributions on a Roth basis.
Effective for contributions made to plans after December 29, 2022.

Increase in age at which RMDs start – Starting on January 1, 2023, SECURE 2.0 increased to 73 the age at which Required Minimum Distributions (RMDs) begin. The RMD age will advance to 75 starting on January 1, 2033.

SIMPLE and SEP Roth IRAs – SECURE 2.0 allows SIMPLE IRAs to accept Roth contributions. It also allows employers to offer the ability to treat employee and employer SEP contributions as Roth, in whole or in part.
Effective on January 1, 2023.

Starter 401(k) plans for employers with no previous plan – The legislation allows an employer who does not sponsor a retirement plan to offer a “starter” 401(k) with simplified requirements and lower contribution limits.
Effective for plan years beginning after December 31, 2023.

Eligibility for long-term, part-time employees – The original SECURE Act required long-term, part-time employees, defined as employees who have worked 500 or more hours in each of three consecutive years, to be able to participate in the deferral-only portion of a 401(k) plan. SECURE 2.0 reduces the three consecutive years requirement to two consecutive years.
Effective for plan years beginning after December 31, 2024.

Higher catch-up limit for certain participants over age 60 – SECURE 2.0 increases catch-up contribution limits for ages 60 to 63 to the greater of $10,000 ($5,000 for SIMPLE plans) or 50% more than the regular catch-up amount. The increased amounts will be indexed for inflation after 2025.
Effective for taxable years beginning after December 31, 2024.

Auto-Enrollment and auto-escalation – Under SECURE 2.0, newly created 401(k) and 403(b) plans must include automatic enrollment and escalation features. Employees must affirmatively opt out of the plan if they don’t want to contribute. If they don’t opt out and don’t select a specific contribution level, the sponsor must enroll them and start contributions at a rate between 3% and 10%, which escalates 1% per year until they fall within a range of 10% to 15%. Organizations with fewer than 10 employees, as well as church and government plans, are exempt.
Effective starting January 1, 2025.

We will speak with employee benefit services clients as these provisions become effective about how to take advantage of SECURE 2.0’s expanded benefits. In the meantime, please contact your GT Reilly advisor if you have questions.