Secure Act 2.0: Significant Changes on the Horizon

‍‍Furthermore, employees are not the only ones focusing on retirement security and planning. The topic has been on the congressional agenda for the better part of this year. Nicknamed the “Secure Act 2.0,” this combination of proposals looks to improve retirement security and saving opportunities for employees.

Secure Act 2.0 has bipartisan interest and nods to the 2019 Secure Act which created changes to retirement savings that had not been seen since 2006. The House passed its version for Secure Act 2.0 on March 29, 2022, named the Securing a Strong Retirement Act.

The Senate has also been focused on retirement related proposals. Their version includes the Rise & Shine Act, which the Senate Health, Education, Labor & Pensions Committee advanced on June 14, 2022. This act is focused on providing additional protections for retirement savings. These proposals also include the EARN Act, approved on June 22, 2022, by the Senate Finance Committee. This act looks to expand retirement plan access and increase the potential of retirement savings.

What You Need to Know

Though there are differences in the House and Senate versions of the Secure Act 2.0, there is still hope for reconciliation and for it to be passed by Congress by the end of the year.

“As organizations watch the progression of Secure Act 2.0, it is important to see how the different requirements could affect their benefit plans,” said Margaret Michael, Senior Manager at Clearview Group. “This is a good time to consider an audit partner to ensure your organization's plan meets the current standards.”

Below are some key points that organizations should take note of as they prepare for the passing of Secure Act 2.0.

Student Loan Payments & Retirement Savings

Employers could gain the opportunity to make contributions to 401(k) plans based on the employee’s student loan payments. While some employees may be focused on paying off their student debt and not able to make retirement contributions themselves, their employers would have an easier time contributing on their behalf to their workplace plan.

Earlier Investment Opportunity for Part-time Workers

Previously, the original Secure Act allowed part-time employees who worked at least 500 hours over the span of a year, for 3 consecutive years, to participate in their employer’s 401(k) program. With Secure Act 2.0, these constraints would be lowered from 3 consecutive years to 2 consecutive years.

Automatic Enrollment

From the House, employers could have the obligation to automatically enroll employees in their 401(k) plan. This would be at a rate of at least 3%, then increasing each year until reaching a 10% contribution. Though workplace savings plans tend to have a positive impact on employee’s retirement saving efforts, they will still have the option to opt out of this automatic enrollment.

Catch-up on Savings

Currently, employees who are 50 or older can make catch-up contributions to their 401(k) plans of up to an extra $6,500. For individual retirement accounts (IRA), catch-up contributions are up to an extra $1,000.

From the House, these catch-up contributions would increase to $10,000 into a 401(k) for individuals between the ages of 62-64. Employees enrolled in a SIMPLE IRA plan would be allowed to provide catch-up contributions of $5,000 (up from the current $3,000). From the Senate, employees ages 60-63 would be able to make an extra $10,000 catch-up contribution.

Accessing Emergency Funds

From the Senate comes two different proposals for employees to access emergency funds. In the first proposal, employees could be automatically enrolled into an emergency savings account, at 3% of pay, saving up to $2,500. This account could be accessed at least once a month.

For the second proposal, employees could withdraw up to $1,000 from the 401(k) or IRA for any emergency expenses. They would not have to pay the typical 10% tax penalty for an early withdraw if they are under 59.5 years old.

From both the House and the Senate, recent domestic abuse survivors who need to take early distributions from their 401(k) or IRA would not be subject to the 10% penalty on an amount up to $10,000 or on the amount of 50% of their account balance (whichever is less).

‍The Secure Act 2.0 looks to make many changes to the retirement savings environment. With the final decision still undecided, organizations must stay on top of the progression as it makes its way to Congress. If your organization needs helps preparing for Secure Act 2.0 or needs an employee benefit plan audit, contact Margaret Michael.