What’s going on with SECURE 2.0?
July 28, 2022
At the end of March 2022, the United States House of Representatives passed their version of the SECURE Act 2.0, or the Securing a Strong Retirement Act of 2022. It’s also known simply as SECURE 2.0 — the follow-up to the Setting Every Community Up for Retirement Enhancement Act from 2019, which aimed to update certain retirement account laws in workers’ favor.
Now, as we continue through uncertain economic times, SECURE 2.0 is poised to create more changes to laws and regulations for certain accounts and policies. What do employer retirement plan sponsors and financial advisors need to know about potential reforms to retirement regulations and legal options? Here, you’ll find an update on SECURE 2.0 and what it means for those who talk retirement.
The 6 key components of SECURE 2.0
One of the first provisions in the new SECURE Act addresses requirements for employers to automatically enroll eligible workers into a 401(k) plan at 3% of their salary and increase it by one percent each year until it hits at least 10% or a maximum of 15%, unless the participant elects otherwise.1
This could help with issues where employees don’t pay attention to their 401(k) plans and help to set them up for better retirement success. But employers will also need to pay attention and be aware of the potential costs involved.
If their retirement plans offer Roth contributions, workers can elect that all or part of an employer’s match be applied to a Roth 401(k).2 Once the worker retires, they can then reap the tax benefits that Roth accounts typically provide, which advisors can illustrate for clients by incorporating the election as an option in projections.
For retirement plan providers, this change would likely mean drawing up new plan language to give employees this option. Given that the change may have a direct, immediate impact on company finances, businesses will probably need to retool their processes and budgets as well, to ensure proper processing for employees who make Roth elections.
Contributions near retirement
People nearing retirement but worried they’ll need more money when that day comes will probably appreciate this next provision of SECURE 2.0. Those who are age 62, 63 and 64 would be able to make “catch-up” contributions up to $10,000, rather than the current limit of $6,500.2
Financial advisors whose clients are worried about not having enough stowed away in their retirement plans will want to encourage those clients to consider making bigger catch-up contributions if SECURE 2.0 passes with this component. Plan advisors may need to adjust their pitches to sponsors that have employees closing in on their golden years.
Required minimum distribution age
If the plan passes, the starting age for required minimum distributions (currently 72) would increase to 73 in 2022, 74 in 2029 and 75 by 2032.2 This could give retirees that much more control over when they want to begin taking distributions from their accounts as they navigate their retirement.
Student loan matching
SECURE 2.0 would let employers match workers’ student loan payments as contributions to retirement.2 It’s all over the news that student loans are a hot-button issue, and this could help alleviate some of the worries about putting money toward loan payments rather than setting it away for retirement.
This would probably mean quite a bit of paperwork for employers and plan providers, not to mention for the workers themselves. It could also be an attractive recruiting and retention benefit to employees, so it should be on everyone’s radar.
Credit for certain small employers
Employers with 50 or fewer employees would see a bump in their tax credit for plan startup costs, from 50% to 100%.1 With this added break, smaller employers might feel more encouraged to offer such plans to their employees.
Stay updated on industry trends and laws
As of this writing, SECURE 2.0 hasn’t been passed into law just yet, though it does appear promising. We encourage you to keep an eye out for news of this law and the impacts it will make.
We have a useful Insights page where we’ve gathered resources and thought leadership to keep you in the know. Bookmark it today so it’s easy to return and stay up to date with the industry’s latest developments.
1Congress.gov, Text: H.R.2954 — 117th Congress (2021-2022), March 30, 2022
2CNBC, House passes ‘SECURE Act 2.0.’ Here’s what that means for retirement savings, March 30, 2022