With Congress’ passage of the SECURE Act in 2019, retirement planning in the United States has changed for the better. The new SECURE Act 2.0, effective January 2023, builds on earlier legislation that increased the age at which retirees must take required minimum distributions (RMDs) and allowed workplace saving plans to offer annuities, capping years of discussions aimed at bolstering retirement savings through employer plans and IRAs.
The most significant new provision of the SECURE Act 2.0 is the expansion of the role of the employee benefits program. Under the new law, employers can now offer multi-year employee benefits programs to support their employees better. These benefits may include 401(k) retirement plans, 529 college savings plans, long-term disability benefits, and health care plans. The expanded role of employee benefits can reduce business costs and give employees more financial security.
One major change that organizations need to be aware of is that employers who start new retirement plans after December 29, 2022 will, beginning in 2025, be required to automatically enroll employees in their retirement plan at a rate of at least three percent, but not more than 10 percent of eligible wages. Employees may opt out. New companies (in business for less than three years) and employers with ten or fewer workers are excluded from this requirement.
Here are ten major changes of the SECURE Act 2.0:
The age to start taking RMDs increases to 73 in 2023 and 75 in 2033.
Automatic enrollment and automatic plan portability: The legislation requires businesses to adopt new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, starting in 2025. It also permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee's low balance retirement accounts to a new plan when they change jobs.
Allow nonprofits to join together to offer defined contribution multi-employer plans to their employees, as for-profit employers were allowed to do under the original SECURE Act.
Higher catch-up contributions: Starting January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions of up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation.
Matching for Roth accounts: Employers can provide employees the option of receiving vested matching contributions to Roth accounts.
Qualified charitable distributions (QCDs): Beginning in 2023, people aged 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust (CRUT), a charitable remainder annuity trust (CRAT), or a charitable gift annuity.
Other changes for annuities: Qualified longevity annuity contracts (QLACs) are deferred income annuities purchased with retirement funds typically held in an IRA or 401(k) that begin payments on or before age 85.
Emergency savings: Beginning in 2024, retirement plans may offer linked "emergency savings accounts" that permit non-highly compensated employees to make Roth (after-tax) contributions to a savings account within the retirement plan.
Student loan debt: Starting in 2024, employers will be able to"match" employee student loan payments with matching payments to a retirement account, giving workers an extra incentive to save while paying off educational loans.
529 Plans: After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.Another important change in the new law is the requirement for businesses to provide additional disclosure to employees about their benefit plans. Employers must ensure employees are aware of the cost of participating in the plans and what they will receive in return. By providing more transparency, employers can ensure that their employees are aware of the true costs of the benefit plans to allow them to make the most informed decisions.
Overall, the SECURE Act 2.0 poses many new opportunities for businesses and Human Resources professionals. By understanding the new provisions and how they will affect their businesses, HR professionals and business leaders can ensure their organizations remain compliant and offer their employees the best benefit plans available.
Contact Kiwi Partners if you need assistance with planning or implementing your nonprofits' employee benefits program.