The SECURE 2.0 Act significantly updates retirement plans, affecting both plan sponsors and participants. Understanding the distinction between its mandatory and voluntary provisions is essential for compliance and strategic planning. Here’s an overview of some key things you need to know. Note that this is not an all-encompassing list, so ensure you review the law closely to maintain compliance.
Mandatory Provisions: Some Provisions You Must Implement
Automatic Enrollment (Effective 2025)
Starting in 2025, all new 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll eligible employees. The initial enrollment rate must be set between 3% and 10%, with annual increases of 1% until it reaches at least 10% (but no more than 15%). Small businesses with fewer than ten employees and new businesses under three years old are exempt from this requirement.
Other Mandatory Provisions
- Required Minimum Distributions (RMDs): The RMD age increased to 73 starting January 1, 2023, and will rise further to 75 beginning January 1, 2033.
- Eligibility for Part-time Workers: As of December 31, 2024, long-term, part-time workers will become eligible to participate in 401(k) and 403(b) plans after two years of service (down from three years), provided they work at least 500 hours annually.
- Catch-up Contributions: Effective for taxable years beginning after December 31, 2025, for employees with compensation of $145,000 or more, all catch-up contributions to qualified retirement plans are subject to Roth tax treatment.
Voluntary Provisions: Optional Enhancements
Student Loan Payment Matching
Beginning in 2025, employers can match employees’ student loan payments with 401(k), 403(b), or SIMPLE IRA contributions. This allows employees to save for retirement while repaying student debt, giving them a dual benefit.
Emergency Savings Accounts
Beginning in 2024, employers could offer emergency savings accounts linked to retirement plans for non-highly compensated employees. These accounts, which operate similarly to Roth IRAs with tax-free withdrawals, are designed to help employees build short-term savings without detracting from their long-term retirement goals.
Penalty-free Withdrawal for Individual Case of Domestic Abuse
Beginning in 2024, employers could permit participants who self-certify that they experienced domestic abuse to withdraw a small amount of money (the lesser of $10,000, indexed for inflation, or 50% of the participant’s account). This would not be subject to the 10% tax on early distributions.
Considerations for Plan Sponsors
- Timeline Compliance: The mandatory provisions come with specific effective dates. Failing to comply could result in penalties, so ensure your plans are up to date.
- Weighing Costs and Benefits: Assess whether the potential employee retention benefits outweigh the administrative and financial costs for voluntary provisions.
- Communication: A clear strategy for informing participants about these changes is crucial, especially for mandatory provisions that will directly impact their accounts and contributions.
- Audit Readiness: New provisions could affect audit procedures, particularly those regarding eligibility, contributions, and distributions. Prepare now to stay ahead of potential audit challenges.
How Yeo & Yeo Can Support You
SECURE 2.0 offers both new opportunities and increased responsibilities for retirement plan sponsors. Whether you are navigating mandatory provisions or exploring optional enhancements, Yeo & Yeo’s experienced CPAs and employee benefit plan auditors can help ensure compliance while maximizing the value of your retirement offerings. Contact us to get started.
Source: https://www.aicpa-cima.com/resources/download/secure-2-0-act-of-2022-considerations-for-auditors