What the Secure Act 2.0 Means for Businesses and Employees

SECURE Act 2.0: Big Changes for Retirement Plans

The House of Representative recently voted and overwhelmingly approved a bill by a vote of 414-5 that significantly impacts the rules about contributing and withdrawing from retirement plans.

SECURE Act 2.0 - Setting Every Community Up for Retirement Enhancement Act - which aims to encourage Americans to save more for retirement, is widely expected to pass the Senate later this year.

HERE’S A LOOK AT WHAT SECURE 2.0 MEANS FOR BUSINESSES AND THEIR EMPLOYEES:

Required Minimum Distribution (RMD) Penalty Reduced

Currently, the penalty is 50 percent of what you should have taken but didn’t. If SECURE 2.0 passes, that penalty will be reduced to 25 percent, potentially 10 percent if corrected in a timely manner. While most retirees take more than the minimum withdrawal amount each year, many forget or incorrectly calculate the minimum. That mistake can be costly under current rules.The proposed new rules are more lenient and would allow for corrective measures.

Auto Enrollment in 401(k) Plans

Employers would be required to enroll employees at 3 percent. Employees could opt out or opt to enroll at a lesser amount. If no action is taken, the salary deferral amount automatically increases by 1 percent each year until the employee reaches 10 percent. This is designed to force more individuals so save more for retirement.

As we all know pension plans are virtually extinct, Social Security generally is only enough to fund a fraction of retirement expenses and most Americans do not save enough to cover the rest. This change will force employers to deduct 3 percent from employee paychecks unless the employee opts out.

Robert Canterbury Senior Wealth/ Retirement Plan Advisor Affinity BST Advisors rcanterbury@affinitybstadvisors.com

Higher Catch-Up Contribution Limits

Starting in 2024, 401(k) participants ages 62, 63 and 64 would be allowed to make additional annual catch-up contributions of up to $10,000. This amount is over and above the standard allowable pre-tax contribution limit, which is currently $19,500. The current catch-up annual limit is $6,500 for those age 50 and older.

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The extra proposed catch-up contributions would have to be made on an after-tax basis.

Push back the age for Required Minimum Distributions

Mandatory withdrawals from IRAs and 401(k) plans currently begin at age 72. New rules would push the age for RMDs back to 73 in January 2023; 74 in January 2030 and 75 in January 2033. This change would allow investors to let their retirement plan savings grow tax deferred longer before having to take mandatory withdrawals and pay applicable taxes.

By Lisa Ramirez, CCA Director of Communications and Membership

SECURE Act 2.0 is the second phase of Congress’ efforts to encourage Americans to better prepare for retirement.

Employer Matching for Student Loan Payments

This provision would allow employer matching contributions in correlation to any student loan payments being made by the employee. Many younger individuals cannot afford to contribute to a 401k plan and miss out on employer match.

National Database for Old and Lost 401(k) Plans

The creation of a national database overseen by the Department of Labor, which would enable people to locate and verify forgotten 401k accounts. It is a common problem - people are often unaware that they have 401k balances in various, forgotten accounts from past jobs. A database would result in better tracking and, in many cases, the consolidation of these accounts.

The first phase - Setting Every Community Up for Retirement Enhancement (SECURE) - went into effect in December 2019.

This next wave of retirement reform further closes gaps in retirement plan access for employees and works to simplify plan administration for businesses. It additionally addresses the specific needs and concerns of older workers, part-time employees, and younger workers, including those paying off student loans.

The House of Representatives overwhelmingly passed the SECURE Act 2.0 (H.R. 2954) on March 29, 2022 by a vote of 414-5.

“I’m proud to join in supporting the bipartisan passage of legislation to help more Americans save for retirement and build on our work last Congress to enact the SECURE Act, which was a first important step in the process of making it easier for workers to open and contribute to retirement accounts,” House Majority Leader Steny Hoyer (MD) said in a statement released after the House passed Secure Act 2.0. “In passing today’s legislation, the Securing a Strong Retirement Act, the House is acting on a bipartisan basis to expand automatic enrollment in companies’ retirement plans, encourage more companies to offer and contribute to their workers’ plans, and allow those near retirement to save more and for longer.”

The Senate is expected to vote, and will very likely approve, the measure before the end of this year.

Part-time Workers Can Contribute

Employers can exclude employees who work fewer than 1,000 hours per year from participation in retirement plans. Under the new rules, that threshold is lowered to 500 hours after two years of service and allows part-timers the ability to save for retirement.

Small Business Tax Credits

The current tax credit for small businesses (up to 50 employees) start-up plans is 50 percent of administrative costs, capped at $5,000 annually. Under SECURE 2.0, the employer credit increases to 100 percent for businesses with up to 100 employees.

CCA Members Together Again for Annual Dinner

It was wonderful to see our members and guests together at the CCA’s Annual Dinner, which was held April 12 at the Powelton Club, and we hope you had as much fun as we did.

A special thank you to our guest speaker, Rick Zolzer of the Hudson Valley Renegades, who made us all laugh but also reminded us all that Dutchess Stadium in Wappingers Falls was proudly built by skilled union labor.

During his remarks, Zolzer recalled the construction of “The Dutch,” which was built at a cost of $8.3 million and completed in a mere 72 days - with some claiming it took just 71. They put the lights up first, Zolzer recalled, so work could continue with or without daylight. It was a short construction window, and many were worried that it wouldn’t be ready to greet fans in time. The concern was unfounded.

“They were still bolting in seats on opening night,” Zolzer told the dinner crowd, which responded with a round of applause for the dedicated and professional workers. And, as promised, the ballpark was ready in time, opening on June 18, 1994. Through the years it’s been expanded and enhanced, with additional renovations planned to ready the ballpark as the Renegades move from Short Season A to High-A.

Thank you to everyone who made the annual dinner a wonderful evening of social networking.