SECURE 2.0 Act Takes Retirement Savings to the Next Level
FEBRUARY 7, 2023
Stymied by inflation, cost increases to housing and healthcare, and even student loan payments, many workers struggle to save for retirement. Their challenge to build and preserve a nest egg is a growing concern to U.S.-based organizations that sponsor retirement plans. An organization’s bottom line can be impacted by more than $50,000 annually for every employee who can’t retire on time due to not effectively saving for retirement.1
That cost can add up to millions annually — a financial blow that’s unsustainable for most organizations. To help employees save for the future and become retirement-ready, employers must enhance retirement plan participation, education and financial wellness programs.
To address the savings barriers Americans face today, the SECURE 2.0 Act provides more than 90 retirement provisions to modernize the retirement system, making plans more affordable and improving wealth-building opportunities for millions of Americans. Some provisions went into effect January 1, 2023, and others will be mandated in 2024, 2025 and beyond.
New Rules Support Retirement Readiness
The SECURE 2.0 Act is estimated to generate nearly $40 billion in retirement savings for new plan participants over the next 10 years. By 2025, employers who establish new retirement savings plans on or after December 29, 2022, must auto-enroll all eligible employees into the plan. Employees must be enrolled at a salary deferral rate between 3% and 10%, and the deferral will increase 1% annually until it reaches 10%. However, employees may change their deferral rate or decline participation in the plan.
Enrolling your employees in the retirement plan is an essential first step in helping them to build nest eggs. However, to encourage employees to stay the course with their investments, you must improve financial education and communication.
Employees face numerous distractions and competing priorities, including market volatility, inflation, and financial commitments such as student loans. Stopping or postponing plan contributions or making uninformed investment choices can negatively impact their retirement savings goals. This also affects employers, as workers then continue to work well past retirement age.
If your plan currently features auto-enrollment and auto-escalation, there’s still an opportunity to review your organization’s strategies for increasing plan participation and develop a robust financial wellness program. Offering educational savings tools and providing forecasts of retirement income may encourage employees to continue building their savings.
The SECURE 2.0 Act has provisions to help older Americans who may not need to take required minimum distributions (RMDs) as previously mandated. Effective January 1, 2023, the RMD starting age increased to 73, and will increase to 75 beginning January 1, 2033. In addition, the excise tax for failure to take RMDs has been reduced.
New Provisions to Boost Savings
Effective January 1, 2024:
- New employer matching contributions on student loan payments — Employers that offer 401(k) plans, 403(b) plans, SIMPLE IRA plans and governmental 457(b) plans may provide a matching contribution based on a participant’s “qualified student loan payments.” This provision is intended to make it easier for employers to provide employer-matching contributions to employees who are paying off student loans in lieu of making retirement plan contributions. An employer can rely on employee certification of the student loan payments.
- Roth treatment of catch-up contributions — For individuals whose wages are more than $145,000 (indexed), catch-up contributions to 401(a), 403(b) and 457(b) plans must be made on a Roth (i.e., after-tax) basis.
Effective January 1, 2025:
- Increased catch-up contribution limits — For individuals 60 to 63 years old, catch-up contributions to retirement savings plans will be increased to the greater of $10,000 or 150% of the regular age 50 catch-up amount in 2024.
- Reduced period of service requirement for long-term part-time employees — For long-term part-time workers to be able to contribute to a qualified retirement savings plan, the required service period will be reduced from three to two years. The employee needs to have worked a minimum of 500 hours of service per year and be 21 years old by the end of the two-year period.
Additional Key Provisions That May Affect Your Retirement Program:
Defined Contribution (Savings) Plans | Defined Benefit (Pension) Plans |
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How USI Consulting Group Can Help
The SECURE 2.0 Act brings dozens of new requirements and enhancements (not all listed here), and it’s important to understand the changes, set a strategy that improves employee savings participation, and identify opportunities to reduce long-term costs to your organization through a workforce that is retirement-ready. You can find additional details on the SECURE 2.0 Act’s requirements in our recent summary of SECURE 2.0 and January Market & Legal Update.
There are many ways USI Consulting Group (USICG) can help you navigate the SECURE 2.0 Act’s provisions, including:
- Enhancing existing retirement plan design
- Developing an employee education program to help employees understand the value of saving, drive retirement plan participation, increase contributions and improve retirement readiness
- Implementing a successful financial wellness program to help employees address a variety of financial challenges, including staying on track for retirement
- Conducting a recordkeeper provider search to evaluate the various recordkeeper options available to determine the best fit for your organization’s retirement plan
If your current financial professional is not educating you on how the new SECURE 2.0 Act provisions can benefit your employees, please allow us to provide a complimentary review of your plan. To learn more, please reach out to your local USICG representative or information@usicg.com, or visit our Contact Us page.
1 Prudential Insurance research, 2019
2 Lincoln Financial Group, 2020 Consumer Sentiment Tracker Study
Investment Advice provided by USI Advisors, Inc. Under certain arrangements, securities offered to the Plan through USI Securities, Inc. Member FINRA/SIPC. 95 Glastonbury Blvd., Suite 102, Glastonbury, CT 06033. USI Consulting Group is an affiliate of both USI Advisors, Inc. and USI Securities, Inc.
This information is provided solely for educational purposes and is not to be construed as investment, legal or tax advice. Prior to acting on this information, we recommend that you seek independent advice specific to your situation from a qualified investment/legal/tax professional. | 1023.S0117.0003
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