Understand the key changes brought by SECURE 2.0 in 2024 that can help companies strengthen their retirement plans and better address the needs of employees. Changes include age-based contributions, student loan matching, emergency savings, and more. Learn how to comply and benefit from these provisions.
Making It Easier To Save for Retirement
As a reminder, The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement, was originally passed in 2019, and expanded on in late 2022, when it became known as SECURE 2.0. Some provisions became effective in 2023, while others become effective in increments through to 2027. 401k plan sponsors who fell behind on SECURE 2.0 during 2023, will particularly want to ensure their plans are in compliance with the new protocols for required minimum distributions (RMDs) and the reduced service required of part-time, long-term employees:
The original Secure Act of 2020 raised the age at which participants in employer-sponsored defined contribution plans [including 401(k) plans] must begin taking required minimum distributions from 70½ to 72. Secure Act 2.0 further raises the age for starting required minimum distributions for terminated employees who are participants, as well as 5% owners from 72 to 73 (and thereafter to 75 in 2033). The change applies to distributions made after Dec. 31, 2022, for individuals who turn 72 after that date.
The new law reduces the length of service required for part-time, long-term employees (those who have reached age 21 and performed at least 500 hours of service in consecutive years) to be included in the plan from three years to two years. This builds upon the expanded eligibility provided by the original Secure Act. Plan sponsors are not required to match elective deferrals made by part-time, long-term employees.
Get up to speed on all the SECURE 2.0 protocols that became effective in 2023 right here, then lean in on the provisions which became effective for 2024, which include age-based catch-up contributions, matching student loan payments, emergency savings accounts, penalty free withdrawals, automatic enrollment relief, and provisions related to automatic portability services. While the goal of these–and all—- SECURE 2.0 provisions is to “improve retirement outcomes for millions of Americans,” employers are likely to find that implementing them has strategic advantages for business too, including increasing participation in the company sponsored plan and addressing the high expectations of employees. Consider, for example, the appeal of age-based catch up contributions and matching student loan payments to workers concerned about their ultimate ability to retire:
Secure Act 2.0 requires catch-up contributions made at age 50 or older be treated as after-tax (i.e., Roth) contributions for employees whose wages (as defined for Social Security FICA tax purposes) exceed $145,000 (indexed for inflation) in the prior calendar year.Employees whose wages are equal to or less than $145,000 are permitted to make catch-up contributions on a pre-tax or after-tax (Roth) basis….
Employers will be permitted to make matching contributions to retirement plans based upon employees’ student loan payments. The matching contributions on student loan payments must vest under the same schedule as other matching contributions under the plan. Accordingly, plan sponsors may treat qualified student loan repayments as employee elective deferrals for purposes of matching contributions in a retirement plan. These matching contributions have to be made available to all match-eligible participants….
Emergency Preparedness
With the onset of the COVID-19 pandemic, it became glaringly apparent that increased attention is needed to boosting savings for emergencies, as well making it easier for workers to make withdrawals from their retirement plans in the event of unforeseen circumstances. Accordingly, several provisions related to emergency savings have become effective under SECURE 2.0 in 2024:
Emergency savings accounts.
Secure Act 2.0 permits plan sponsors to add an emergency savings account to their retirement plan, designated as an after-tax (Roth) account. Sponsors may automatically enroll non–highly compensated employees…at no more than 3.0% of their compensation, not to exceed $2,500 annually….Contributions are made post-tax and are treated as employee elective deferrals for purposes of matching contributions…..Employer matching is also capped at $2,500 annually. Withdrawals from emergency savings accounts will be tax-free and penalty-free…..
Penalty-free withdrawals.
Under the legislation, no 10% early distribution penalty will be assessed on a withdrawal of up to $1,000 before age 59½ that is used for emergency expenses that are unforeseeable or immediate financial needs relating to personal or family emergency expenses.Taxpayers can repay the withdrawal within three years; however, no further emergency withdrawals are permitted during this period unless repayment occurs.
Financial Well Being and Plan Sponsors
Given the sheer breadth and depth of SECURE 2.0, it’s essential for plan sponsors to step up their own protections too. Importantly, once you are armed with Colonial’s affordable fiduciary liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000.
At Colonial, a whole year of Fiduciary Liability Insurance comes to less than a few dollars a day, and we even include Cyber Liability coverage to further protect the business and retirement plan. We also offer locked in rates with our multi-year packages, giving you an efficient and effective way to remain buttoned up.
Log In and Opt To Protect Yourself Today
Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.