ALERT: Setting Every Community Up for Retirement Enhancement Act: SECURE 2.0

1. Automatic Enrollment in Retirement Plans: Employers sponsoring new 401(k) and 403(b) plans are required to enroll eligible employees automatically. The initial contribution rate must be at least 3% of the employee’s salary, increasing by 1% annually until it reaches at least 10%, but not more than 15%. Employees can opt-out or choose a different contribution level, and the contributions must be invested in the qualified default investment alternative unless the participant makes a different election. The participant has 90 days after their entry date to opt-out and request a refund of any money that has been deferred. This provision is required under the law. Existing plans are not subject to this new provision.
2. Long-term Part-time Employee Eligibility: The SECURE 2.0 Act reduces the eligibility requirement for part-time employees to participate in an employer-sponsored retirement plan. Employees who work at least 500 hours per year for two consecutive years (down from three years) are now eligible to contribute to a retirement plan. This provision is required under the law.
3. Catch-up Contributions for Higher Earners: Employees aged 60 to 63 can make higher catch-up contributions (“super catch-up”) to their retirement plans. The additional amount, above the normal catch-up amount, is $3,750. This will allow a maximum contribution of $34,750 for anyone turning age 60 to 63 in 2025. The amount may be adjusted annually. This provision is required, but only if the plan allows catch-up contributions.
4. Student Loan Matching Contributions: Employers can now treat employees’ qualified student loan payments as elective deferrals for the purpose of matching contributions in retirement plans. This provision aims to help employees burdened by student loans receive employer contributions to their retirement savings. It is an optional provision that the plan sponsor may or may not elect to adopt.

These provisions are designed to enhance retirement security, particularly for employees who may have been underserved by traditional retirement savings mechanisms. The changes reflect an ongoing shift towards improving access to retirement savings, addressing student loan burdens, and encouraging more robust emergency savings.

These additional features and benefits will have official guidance issued from the Department of Labor in the future. For now, you may rely on previous guidance that has been issued for the first three items. Proposed guidance has been issued for the student loan provision, but some questions remain to be answered. Once final guidance is issued, you will be required to modify your process to match the guidance, but it will not be necessary to look back and fix any differences.

A lot is going on with this legislation, and we know you have a lot on your plate. Let AGH help you navigate these options and help you decide how they fit your specific plan.