The new year saw new federal legislation (SECURE ACT 2.0) enacted to make it easier for retirement plan participants to save even more, and to make it easier for plan sponsors to offer plans and enroll participants.

The SECURE Act 2.0, enacted in 2019, is a follow-up to the SECURE Act, which was enacted in 2019 to prepare all communities for a fulfilling life in retirement, and it brings great news.

According to Stephen Kovach, Chief Investment Officer at Global Advisers: “Employees can save more with higher catch-up contributions, receive a match on student loan repayments, and maximize retirement savings in their Roth IRA.”

Most of the provisions of the new law will not come into effect until after January 1, 2024. However, some optional provisions are effective immediately. Below are highlights of the new legislation and what it means for plan sponsors and participants.

Catch-up contribution goes up, but the loss must be for a specific worker

Participants aged 60-63 can contribute $10,000 or 50% more than the standard catch-up amount, whichever is greater, to a defined contribution (DC) plan starting in 2025. However, starting in 2024, the government intends to use taxes collected from ROTH contributions to fund other provisions of the law, so catch-up contributions from workers earning more than $145,000 will be a loss (i.e. done in after-tax dollars). Low-wage workers can continue to make catch-up contributions on a pre-tax basis. Plans should offer Roth options that allow catch-up contributions of any kind. The $10,000 and $145,000 amounts are indexed to inflation after the effective date.

For plan sponsors and participants, this means:

Sponsors of plans that do not allow donations to Roth are encouraged to consider offering this option. This will allow participants who have already made catch-up donations to continue to donate and allow new eligible participants to start.

Matching Employer Contributions Based on Student Loan Payments

Starting in 2024, employers will be able to make employer contributions toward employee student loan payments, even if the employee has not contributed to the plan. These donations could help workers pay off their student loans.

Automatic Portability

Under the new policy, a participant’s account worth less than $5,000 can be automatically transferred to a new employer’s pension plan unless the participant chooses otherwise. What this means for plan sponsors and participants:
Subscribers can benefit from new portability features. Automatic portability allows plan participants to receive eligible benefits by consolidating retirement accounts from different employers. For plan sponsors, this feature helps reduce the occurrence of “absentees”, or “missing participants”.

Auto-enrollment for new DC plans is now mandatory

New legislation requires employers to introduce an automatic savings clause in DC plans established after 2024. Employers offering new pension plans must automatically enroll new employees with a savings rate of at least 3% of their salary and automatically increase the savings rate by at least 1% each year (with a minimum of 10% and no more than 15%).

For plan sponsors and participants, this means:
Employers who currently offer 401(k) or 403(b) plans do not need to add these automated features.

These benefits and features are not exhaustive and do not represent the full extent of the Act. Contact your wealth management team for full details.