It’s official: Secure 2.0 has been signed into federal law. Retirement industry experts point out that it will have widespread implications, with some of the new regulations aimed at reform going into effect immediately, while others will be phased in over the next several years. Read on to get the scoop on key changes to stay on top of.
It’s The Law
Secure 2.0, passed in late December, after months of legislative debate, put some quick changes into motion. For example, as Plan Sponsor reports, among the provisions that became effective as of January 1, 2023, are: “increasing the required minimum distribution age to 73 and increasing the small business startup tax credit from 50% of administrative costs to 100%, up to $5,000.”
Experts point out that because Secure 2.0 “is the aggregated and reconciled product of three bills,” it is quite hefty: it is 400 pages long and encompasses many disparate provisions broadly aimed at increasing participation in employer sponsored retirement plans. The retirement industry generally applauds passage of Secure 2.0, as summed up by this statement from the Investment Company Institute:
Key provisions of this important bill include the promotion of automatic enrollment, which will lead to increased participation rates in 401(k) and 403(b) retirement savings plans. The bill will support people as they look to start saving earlier by allowing employees to receive matching contributions to their retirement accounts based on student loan payments. Additionally, the legislation will help expand pooled employer plans, giving additional opportunities for individuals to access savings tools, and build for a secure financial future.
Automating Saving
With so much bundled into Secure 2.0, ERISA specialists at the Wagner Law Group stress “plan sponsors and advisers need to be aware of the various time frames for each specific law and how to manage them accordingly.” Though many of the changes are not controversial, there is a proliferation of technical adjustments plan sponsors will need to monitor headed toward 2025, when most of the provisions of Secure 2.0 become effective.Plan Sponsor offers an overview of key provisions here. Based on research and best practice, automating opportunities for workers to save is a prominent feature of Secure 2.0 legislation:
New 401(k) and 403(b) plans would have to start enrolling participants with a salary deferral of at least 3% of salary, no higher than 10%, and escalate at 1% per year of service up to a minimum of 10% and maximum of 15%. An employee can opt out of the auto-enrollment and escalation. Small businesses, new businesses and church and government plans are exempted from this provision.
As plan sponsors dig into the many new compliance issues and timeframes to be addressed and monitored, a best practice is amping up on liability coverage to protect themselves in case of mistakes. Colonial Surety makes it uniquely affordable and easy to do so. Remember, ERISA fidelity bonds, though required by the Department of Labor, do not provide protection for unintended acts—only fiduciary liability insurance does.
Emergencies and Hardships
Although Secure 2.0 aims to increase saving opportunities for workers, it also recognizes that emergencies and hardships continue to befall many families and allows for both emergency savings and hardship withdrawals:
Participants [can] withdraw up to $1,000 in one withdrawal per year without an early-withdrawal tax penalty. They would have the option to repay this amount in three years and could not withdraw in this fashion again for three years unless the earlier withdrawal has been repaid. Employers [can] also offer a retirement plan-linked emergency savings account that would allow four penalty-free withdrawals per year.
Participants [can] withdraw up to $22,000 to pay for expenses related to a natural disaster, which would be taxed as gross income over three years without additional penalty. Survivors of domestic abuse could also withdraw the lesser of $10,000 or 50% of their retirement account without penalty upon self-certifying as a survivor of domestic abuse.
Overall, Secure 2.0 brings a variety of new details and considerations for company sponsored retirement plans to steward. Realistically, even with diligent effort, plan sponsors will make mistakes. Colonial’s reasonably priced and easy to obtain Fiduciary+Cyber coverage package, ensures sponsors and their businesses are protected with defense costs and penalty limits up to $1,000,000, if faced with claims of alleged or actual fiduciary breaches of duty in connection with the employee retirement plan. The Cyber Liability coverage is even included at no extra cost. Get protected, in minutes now:
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