SECURE 2.0 Act of 2022: What it Means for Your Business
Part of a series | SECURE 2.0 Act Insights
Following its predecessor's reforms, the SECURE 2.0 Act will empower more employers and employees to increase retirement readiness and build a stronger financial future. Here's a recap of the legislation's key provisions.
On December 23, 2022, Congress passed the Consolidated Appropriations Act, containing numerous provisions aimed at retirement plan reform. On December 29th, President Biden signed it into law. Referred to as SECURE 2.0 Act of 2022, this new legislation adds valuable benefits to both retirement plan sponsors and their employees. From expanding coverage to simplifying plan rules, the objective is to make it more attractive for employers to offer retirement plans and improve retirement outcomes for employees. Below is a summary of some key provisions:
Automatic enrollment
Employers who start new retirement plans will be required to automatically enroll employees at a rate of at least 3% but not more than 10%, beginning in 2025. Excluded from this requirement are new companies in business for less than three years and businesses with 10 or fewer workers.
Required minimum distributions (RMDs)
The age requirement to begin taking RMDs will increase from age 72 to 73 in 2023, and then to age 75 in 2033. In addition, the penalty for not taking an RMD is reduced from the current 50% to 25%, and in some cases to 10%. In addition, beginning in 2024, the RMD requirement for Roth 401(k) accounts during a participant's lifetime will be eliminated.
Catch-up contributions
Currently, participants age 50 and older can contribute an extra $7,500 per year annually into their 401(k) account. This amount will increase to $10,000 per year starting in 2025 for participants ages 60 to 63.
Additionally, catch-up provisions will be indexed for inflation. Lastly, effective January 1, 2024, all catch-up contributions for participants earning more than $145,000, will have to be made on a Roth basis.
Long-term, part-time employees
The original SECURE Act required that long-term, part-employees (those who worked between 500 and 999 hours for three consecutive years) be eligible to participate in their company's retirement plan. Under the new law, that requirement is reduced to two years in 2025.
Student loan debt
Beginning in 2024, student loan payments can be treated as retirement contributions for the purpose of qualifying for matching contributions in a workplace retirement account. Employers will be able to make contributions to their company retirement plan on behalf of employees who are paying student loans instead of saving for retirement.
Emergency savings
Under the new law, plan participants generally will be able to withdraw up to $1,000 per year from their retirement savings account for emergency expenses without having to pay the 10% tax penalty for early withdrawal if they're under age 59½. In addition, companies could allow employees to set up an emergency savings account through automatic payroll deductions. These contributions would be limited to $2,500.
Saver's match
Beginning in 2027, low to middle-income employees will be eligible for a federal matching contribution of up to $2,000 per year that must be deposited into their retirement savings account. The match phases out based on income and tax-filing status and replaces the current Saver's Credit.
Retirement benefits are a must-have for many new hires
Though many of the SECURE 2.0 Act provisions won't be effective for a few years, it's to every business's benefit to sponsor an employee retirement savings plan sooner rather than later — especially in the current competitive labor market. And with available tax credits to offset start-up costs, there's no better time to get started.
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Learn how to choose the right plan for your business. Connect with an ADP retirement specialist or call 1-800-432-401K today.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor. ADPRS-20230109-4048
