"Employer-Sponsored Retirement Plans Get a Boost with Secure Act 2.0

ARTICLE | December 08, 2023

The Secure Act 2.0, set to take effect on January 1, 2024, is set to revolutionize the financial landscape for American workers and employers alike. With over 90 provisions aimed at safeguarding and enhancing retirement savings, the Act seeks to address key issues in retirement plan administration and offers new advantages for college savings plans.

Something new

One of the most salient features of the Secure Act 2.0 is its provisions related to employer-sponsored retirement plans. The Act encourages employers to make matching contributions to an employee’s retirement plan if the employee is making student loan payments. This benefit extends to various types of retirement plans, including 401(k), 403(b), 457(b) or SIMPLE plans. 

The eligibility for matching contributions requires the employee’s loan payments to be for a qualified student loan for higher education costs, and the employee must have been enrolled in a program leading to a certificate or degree. Employers can rely on employee certification of payment, and the total annual elective deferral and loan payment amount cannot exceed the Section 402(g) IRC limit. This provision offers a new way of supporting employees with student debts, potentially enhancing recruitment and retention strategies for employers.

The Act also aims to enhance retirement savings by keeping employees connected to their retirement accounts as they transition between jobs. To reduce the leakage of retirement savings out of ERISA plans, the Act proposes the creation of a lost and found database to assist participants in locating retirement accounts from former employers. Furthermore, the Act mandates the development of a system for the automatic rollover of retirement savings to a new plan when employees change jobs. These provisions aim to streamline the movement of retirement benefits and reduce the risk of misplaced monies or prematurely distributed funds.

Finally, the Secure Act 2.0 brings groundbreaking changes for 529 college savings plans. For parents who have saved diligently for their child's education, the Act now allows for the conversion of unused 529 funds into a Roth IRA. This provision adds flexibility to these plans, permitting funds initially set aside for education to be repurposed for retirement without the burden of penalties or additional taxes. However, certain conditions must be met, and the IRS has yet to clarify how income limitations with Roth IRAs affect conversions from 529s to Roth accounts.

The Secure Act 2.0 ushers in a new era of financial planning, providing an innovative framework for retirement and education savings. While the Act offers exciting possibilities, it’s crucial to consider these changes in the context of one's overall financial strategy. Professional advice should be sought to navigate the complexities of the Act and to align these new provisions with individual financial goals.

The changes brought about by the Secure Act 2.0 are not only significant but also transformative. They offer a more flexible and adaptable financial landscape, ensuring that individuals and families can better meet changing circumstances and secure their financial futures. As the Act rolls out, it is expected that further guidance and clarification will be provided, aiding individuals and employers in fully leveraging these new opportunities.