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The SECURE Act 2.0

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8 Ways It Will Change Employee Retirement Plans

The SECURE Act 2.0 passed in March 2022 in the U.S. House of Representatives and is in The Senate waiting for revision or approval to expand retirement savings initiatives from the 2019 SECURE Act. The Senate proposed a similar bill in May 2021, and the two will likely combine. Here are the SECURE Act 2.0 proposals for employee retirement plans to help working Americans save more for retirement:

Automatic enrollment

Employees will automatically be enrolled at a 3% contribution rate but can opt-out or save less or save more up to their IRS contribution limit each year.

Automatic employee contributions increase

Employee savings plan contributions would increase each year by 1% up to 10%.

Employees choose where the employer matching dollars deposit

Employees can choose the Roth IRA or pre-tax retirement savings account. Before SECURE Act 2.0, all employer matching dollars were deposited into the pre-tax account.

Employees pay on student loans and still receive the employer’s match

Employers will contribute their match and their employee’s contribution while the employee pays on their student loans.

Part-time workers are eligible for a 401(k) plan after two years

The SECURE Act will shorten the timeline for part-time workers who want to participate in their employer’s retirement savings plan from three to two years.

Catch-up provisions increase for employees in their 60’s

Catch-up provisions for 401(k) and 403(b) plan participants ages 62, 63, or 64 would increase by $10,000 per year. Participants over age 50 enrolled in these retirement plans can currently contribute $6500 more for 2022. The SECURE Act 2.0 would provide an even more significant boost of $10,000 in catch-up contributions to investors in their 60’s.

Catch-up contributions must be made into a Roth IRA

Catch-up contributions deposit into a Roth IRA instead of the 401(k) starting in 2023 (in the house version). Currently, the employee can decide which account they want their catch-up contributions to go toward, either the Roth IRA or the 401(k) or 403(b).

Catch-up contributions will be indexed for inflation

Catch-up contributions for IRAs and Roth IRAs from owners ages 50 and older would be indexed for inflation. Since 2006, the $1000 extra hasn’t increased, regardless of inflation.

Talk to your financial professional

The SECURE Act 2.0 hasn’t passed yet, but a version of these proposals likely will before the year ends. The SECURE Act’s proposals are an effort to help working Americans save more for retirement. If you have questions as an employer or employee participating in a retirement savings plan, your financial professional can help. Reach out to them for the latest on the SECURE Act 2.0.

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