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Secure Act 2.0: What you Need to Know

July 22, 2022

The Secure Act 2.0 builds on previous Secure Act legislation, which incentivizes retirement plan participation by adding benefits to both plan sponsors and plan participants.

The lack of retirement funds among America’s population is staggering. According to the U.S. Bureau of Labor Statistics, 32 percent of small businesses do not offer a retirement plan to their employees. Additionally, 25 percent of plan participants choose not to participate.

Three years prior, the original Secure Act passed with the intent to lower these statistics, however, it did not produce the expected change. The original act made Safe Harbor Retirement Plans more accessible and added additional tax credits and provisions for part-time workers, full-time workers, and plan sponsors.

The Secure Act 2.0 builds off the first by offering benefits aimed to tackle the retirement savings crisis by increasing participation and ease the cost of sponsoring a plan. These new benefits under Secure Act 2.0 may make sponsoring a plan both viable and beneficial for your business.

 Both the Senate and House of Representatives have put forth their respective provisions for the Secure Act 2.0. Despite this, there still needs to be a compromise between the two before it solidifies as U.S. legislature.

 

Secure Act 2.0 for Employers

Saver's Tax Incentive

To incentivize more small businesses to sponsor retirement plans, Secure Act 2.0 extends the Saver’s Tax Credit. The current iteration of the Saver’s Tax Credit allows employers to apply for a 50 percent refund for the costs of sponsoring a retirement plan for up to three years. The new version under Secure Act 2.0 would allow employers to refund 100 percent of the cost of sponsoring a retirement plan for three years with a $5,000 annual cap. Meaning your business could receive a $15,000 reduction in retirement plan sponsor costs.

Employer Contribution Tax Incentive

Small business employers who sponsor a retirement plan gain an additional benefit based on their contributions to the retirement plan. Employers will recieve a percentage of their contributions made on behalf of the employee (up to $1,000 per employee) for businesses with 50 employees or less. For the first two years, this credit matches 100 percent of employer contributions, then a 25 percent reduction in the credit each year until the tax credit is no longer available.

Eligible employers with more than 50 employees would recieve the same credit along with a 2 percent reduction in the credit for each employee over the allotted 50 employees. 

Auto-enrollment

Under the provisions by the House of Representatives, retirement plan sponsors are required in certain circumstances to auto-enroll their employees in the company plan. It will apply to most instituted plans after the bill is passed.

However, auto-enrollment will not apply to:

  • Companies with less than 10 employees. 
  • Government or Church Plans
  • Business established for less than three years

Those who auto-enroll must also contribute at least 3 percent of their income and raise it each year until contributions reach 10 percent.

 

Secure Act 2.0 for Participants

Matching Student Loan Payments

According to Forbes, student loan debt has reached a staggering $1.7 trillion. To combat this, the House provisions include matching contributions for those dealing with student loan payments. This would allow employees to both pay off student loans and contribute to their retirement plan at the same time.

Emergency Funds

Wish you had access to your retirement funds in an emergency? One provision allows employees to automatically contribute to an emergency fund up to $2,500. Any additional contributions would go directly to their retirement account. Another provision would simply allow withdrawals from your retirement account for emergencies up to $1,000, once a month. 

401(k)s for Part-time Workers

Currently, for those who work between 500-999 hours, a retirement plan is not available for three years. Both the bills put forth by the Senate and House seek to reduce this to two.

Catch-up Contributions

Under the House of Representatives' provisions, catch-up contributions for those between 62 and 64 are increased. The current catch-up contributions are at $5,000, but the new catch-up contributions reach 10,000. For SIMPLE Plans, the catch-up contributions are $5,000 for the same age group.

Retirement Savings Lost and Found

According to a 2021 study by Capitalize, there are almost 25 million forgotten 401(k) accounts. Combined, these assets reach a staggering $1.35 trillion across the US. 

This bill will create an online database no later than two years after the Secure Act 2.0 is passed. It will serve to assist plan participants in tracking down lost retirement funds. 

As of now, the most effective way to track down lost retirement funds is to contact previous employers or use a financial advisor. This database is poised to save participants time and money to track down the money they have earned.

Other Provisions

There are dozens of other provisions across both bills presented by the Senate and House of Representatives. These cover a wide range of additions that could make sponsoring a retirement plan feasible. If you have any questions about what Secure Act 2.0 entails or how this may change your current retirement plan, don’t hesitate to contact us.

 

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