Key Details on New SECURE 2.0 Retirement Plan Guidance, Part 1
Part of a series | SECURE 2.0 Act Insights
From auto enrollment to tax credits and military spouse eligibility, Part 1 of our two-part blog series explains the latest guidance on SECURE 2.0 provisions as they relate to your company's retirement plan.
SECURE 2.0 introduced many new provisions that impact employer-sponsored retirement plans. And after a long wait, the IRS recently provided much-needed guidance on certain provisions in Notice 2024-02, bringing increased clarity to important aspects of the sweeping legislation.
Auto-enrollment plan mandate
Under SECURE 2.0, if an employer has established a plan on or after December 29, 2022, it must include an eligible automatic contribution arrangement beginning in the 2025 plan year.
There was some question about what it meant to be "established," and the notice provides the answer. A plan is established when it is initially adopted, even if the effective date is later. For example, if a plan is adopted on December 1, 2022, and is effective January 1, 2023, that plan is not subject to the auto-enrollment mandate and is considered a legacy plan.
Issues may arise with company mergers and spinoffs. But generally, employers will not be subject to the automatic enrollment mandate if they were not subject to it under their previous plan.
Tax credits for small employers
SECURE 2.0 modified the start-up tax credit for certain smaller employers, creating an additional employer contribution credit for when the employer makes contributions on behalf of their participants. The guidance clarified the timing of when an employer can take the credit and for how long.
To claim the employer contribution credit, employers must have had no more than 100 employees who received at least $5,000 of compensation for the year preceding the first year of the credit period. Employers may claim the contribution credit for five years, starting with the tax year in which the plan became effective if they continue to be an eligible employer.
The employer contribution credit is treated as a separate tax credit in addition to the start-up credit. An employer may be eligible to receive both. The contributions credit is limited to a maximum of $1000 for each employee who earned less than $100,000.
Military spouse eligibility credit
SECURE 2.0 gives small employers a tax credit for permitting military spouses to participate in an eligible defined contribution plan that provides certain benefits to those spouses beginning in tax years after December 29, 2022. To claim the military spouse eligibility credit, the employer must meet the definition of an eligible employer for each tax year that it intends to claim this credit.
The employer may claim this credit for tax years beginning after December 29, 2022, even if the three-year credit period started in a prior tax year or if the military spouse participated in a defined contribution plan of the employer before the plan started to provide the applicable benefits to military spouses.
De minimis financial incentives
For employees who don't already have a deferral election in place, employers may now offer a de minimis financial incentive valued at no more than $250 to participate in the plan. The incentives may not be provided as employer-matching contributions and do not count toward plan contribution limits.
Stay tuned for part two of this blog series for further guidance. To learn more about ADP retirement plan options, visit us at adp.com/401k.
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. M-521925-2024-04-03
