This new legislation has important implications for individuals saving for retirement. BPM’s Dina Firestine and Ryan Davis highlight what you need to know now, and what to prepare for ahead.
SECURE Act 2.0, signed into law in December 2022, has paved the way for dozens of retirement-related provisions taking effect now and into the future. It built upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which had big implications for individuals saving for retirement, as well as the plan sponsors administering their accounts.
In broad terms, these regulations seek to incentivize companies to increase contributions to their employees’ retirement plans and improve workers’ ability to save for their futures. This is becoming an increasingly pressing issue in the United States. Research by the Federal Reserve found that 25% of non-retirees have no retirement savings at all, and just 40% report that their retirement savings efforts are on track.
In an era when consensus in Washington is a rarity, SECURE Act 2.0 saw bipartisan support from representatives on both sides of the aisle. This points to a general understanding by Congress that Americans need assistance with saving for retirement and that they’d like to be part of the solution moving forward.
Key provisions of SECURE Act 2.0
SECURE Act 2.0 contains more than 90 new provisions; some key highlights include:
- Increasing the age at which retirees must start to take required minimum distributions (RMDs) from IRA and 401(k) accounts (from age 73 in 2023 to age 75 by 2033).
- Removes the RMD requirement for Roth accounts.
- Changes to the amount of catch-up contributions for older workers with workplace plans.
- Support for workers that are also paying back student loans.
We take a closer look at some of these items below.
Minimum age changes
The SECURE Act 2.0 enacted important changes for employees approaching retirement age. Starting in 2025, individuals ages 60 through 63 will be able to make catch-up contributions of up to $10,000 annually to a workplace plan (currently, that amount is $7,500 annually). Additionally, the law also pushes back the Required Minimum Distributions (RMDs) to age 75, starting in 2033, which is a significant change from age 70.5 prior to the original passing of the SECURE Act of 2019.
Support for individuals paying back education debt
Sizable student loan payments can be a blocker when it comes to saving for retirement. This situation has been exacerbated by increasing tuition rates at colleges and universities. SECURE Act 2.0 seeks to address this challenge by enabling employers to view student loan payments as “elective retirement contributions,” making those payments eligible for matching contributions. The goal is to help individuals save for their futures while also meeting their student loan obligations. This provision will take effect in 2024.
There’s no doubt that this is an exciting benefit for employees who qualify; however, there’s a lot to unpack here for employers and plan administrators. For example, they still need to figure out how to connect student loan payments to 401(k) accounts since it’s outside the payroll environment.
The bottom line is there’s still a complex operational component to sort here — but those who get it right will be able to offer a powerful savings tool to their workers, as well as a great recruiting incentive for prospective employees.
The path forward
The implementation of SECURE Act 2.0 remains a developing situation, with more information to come. We expect both the Department of Labor and the IRS to provide more guidance as these changes take effect in phases. There will be many more questions related to new provisions and how they will work. For example, one of the biggest challenges to date has been confusion and discrepancies around different effective dates.
How BPM can help
Our experienced team of professionals works with hundreds of employee benefit plans annually across industries, business types and sizes. We have the technical skills and the capabilities to help you navigate this changing landscape. As SECURE Act 2.0’s provisions take shape, we can help you understand the details of the legislation to help you achieve compliance in the months and years ahead — all while helping your workforces build more secure financial futures.
