Say Hello to Higher Savings: Secure Act 2.0's Impact on 401(k) and 403(b) Enrollments

ARTICLE | December 07, 2023

The Secure Act 2.0, the most significant retirement legislation in recent years, is set to bring sweeping changes to retirement planning. The act, which will take effect from January 1, 2024, offers a range of provisions designed to bolster retirement savings through employer plans and Individual Retirement Accounts (IRAs).

SOmething new... 

For employees grappling with student loan debts, Secure Act 2.0 brings welcome relief. Employers can now make matching contributions to an employee’s 401(k), 403(b), 457(b), or SIMPLE employer-sponsored retirement plan if the employee is making qualified student loan payments. The annual maximum deferral limit for these repayments eligible for matching contributions for 2023 stands at $22,500 for 401(k)/403(b)/457(b) and $15,500 for SIMPLEs. The move is seen as a way for employers to help employees manage their student debt, regardless of their salary levels or job functions.

Another significant change coming in 2024 is the exemption of Roth accounts in employer retirement plans from Required Minimum Distributions (RMDs) requirements. This change allows Roth 401(k) account holders to avoid the need to roll over their funds into a Roth IRA to bypass RMDs, simplifying the process for many retirees.

The act also addresses a drafting mistake in Section 603 of Secure 2.0 that inadvertently eliminated all catch-up contributions. An IRS notice now provides a two-year administrative extension, allowing catch-up contributions to continue to be made under pre-Secure 2.0 law for plan years starting in 2024. This extension is a relief to the defined contribution retirement plan community, which had previously expressed concerns about the time constraints to update their systems to implement this provision.

In addition, the Secure Act 2.0 introduces a critical provision that allows a surviving spouse to be treated as their deceased partner for the purpose of RMDs. This change is particularly beneficial for a younger widow, who can now delay withdrawals until they reach the minimum RMD age, instead of having to take RMDs out earlier based on their deceased spouse's age.

The legislation also mandates that businesses adopting new 401(k) and 403(b) plans automatically enroll eligible employees, starting at a contribution rate of at least 3%, from 2025. This provision is expected to significantly boost retirement savings, especially for lower-balance savers who typically cash out their retirement plans when they change jobs.

Secure Act 2.0 also considers the needs of employees with emergency savings and student loan debts. It lets defined contribution retirement plans add an emergency savings account associated with a Roth account. It also allows employers to match employee student loan payments with matching payments to a retirement account, providing added incentive for employees to save while paying off educational loans.

The Act's rollout is not without challenges. Many administrative and implementation questions remain, and more guidance is anticipated from the US Department of the Treasury and IRS to fully implement these features. 

As we navigate through the changes brought about by Secure Act 2.0, it's essential for employers, plan administrators, and sponsors to fully understand their regulatory obligations and develop strategic implementation plans to ensure compliance and leverage the provisions to benefit their employees' financial readiness for retirement. 

Disclaimer: This article is meant to provide a general overview of some of the provisions of the Secure Act 2.0. Please consult with a CPA or financial advisor for personalized advice and information.