On January 1st, provisions to the SECURE Act 2.0, part of the 2023 omnibus spending bill, went into effect – and it may affect your benefits package.
The SECURE Act 2.0 – which is built off the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 – is designed to enhance retirement-readiness with improved retirement savings options.
There are two key provisions that went into effect this year that HR needs to know about: matching contributions for student loan repayments and emergency savings accounts within retirement plans.
Here’s what to know about the potential impacts of SECURE Act 2.0.
SECURE Act 2.0: The basics
SECURE Act 2.0 was signed into law by President Biden in December 2022 as part of the Consolidated Appropriations Act and became law in March 2023. It aimed to help Americans save more for retirement, improve the rules for retirement and lower the cost of setting up retirement plans for employers.
The Act has 92 total provisions, including:
- Automatic 401(k) and 403(b) enrollment
- Increased age requirement for Required Minimum Distributions (RMDs), and
- Tax benefits for employers that start new retirement plans or offer automatic enrollment.
Other provisions include new catch-up contribution limits and expanded access to retirement funds under different circumstances, such as domestic abuse survivors or victims of natural disaster.
With an estimated 25-40% of low-to-moderate-income (LMI) workers not participating in retirement and health benefits in a typical year due to insufficient financial resources, the SECURE Act 2.0 provides “tangible, short-term financial benefits within retirement plans [so] employers can encourage and incentivize workers to save for the future,” says Baylor.
Some provisions have been in effect since 2023, while others will not be effective until 2025. However, two key provisions have just taken effect that need to be on your radar.
Emergency savings accounts within retirement plans
With this provision, retirement plan sponsors can offer a linked emergency savings account. Non-highly compensated employees, defined as those earning up to $150,000 in 2023, can make after-tax contributions and employees can withdraw balances as often as monthly.
Eligible employees may be automatically enrolled at up to 3% of their pay, unless the participant elects a lower contribution rate or opts out. Contributions may be made until the account balance reaches the $2,500 cap (or a lower amount set by the plan).
“From Lafayette Square’s perspective, for a retirement plan to work for LMI workers, it needs to provide access to an employer-supported emergency savings account. Grappling with the effects of inflation and stagnant wages the last few years, many LMI workers don’t have liquidity for unexpected expenses. So having access to penalty-free funds in a pinch, while simultaneously saving for the future, can make a world of difference. (It is worth noting that emergency savings plans can also be offered out-of-plan.)”
Employer match for student loan repayment
Under the second SECURE Act 2.0 provision taking effect this year, employers are now able to match contributions for student loan repayment in a retirement account.
When an employee makes a qualifying student loan repayment, employers can put a matching contribution into a 401(k) to aid employees who are paying loans instead of saving for retirement.
“About one-fifth of U.S. adults hold student loan debt. While the Biden Administration has been working to reduce or forgive federal student debt for some borrowers, many of these efforts have been stalled and don’t include private loans,” says Baylor. “These payments present yet another challenge in balancing current obligations with future savings. By allowing for this matching contribution, SECURE 2.0 gives employers a way to help employees save for retirement while taking a positive and necessary financial action in the present.”
How HR can take advantage of new SECURE Act 2.0 provisions
These new provisions taking effect can have a significant impact for an organization if you know how to take advantage of it.
“This legislation paves the way for employers to not only make a material impact on their workers’ everyday and long-term financial lives, but in so doing, potentially improve benefits participation and increase employee loyalty and engagement,” says Baylor. “Studies have shown that financial stress can lead to distraction and absenteeism, so there is a business case for employers to better support their people with the right benefits.”
Here are a few tips to make sure you’re getting the most out of the new SECURE Act 2.0 provisions:
- Use provisions to augment benefits: “SECURE 2.0 has created a landscape where there is a menu of ‘widgets’ that employers can add to enhance their retirement plans,” says Baylor. “For benefits teams that may not have the budget or bandwidth to introduce a lot of elective benefits, augmenting their plans with these new features can serve as an efficient way to offer more value and potentially increase plan participation in turn.”
- Survey employees: “[Use] available data and conduct employee surveys to understand the unique needs and challenges of the employee base to decide which plan features and benefits may have the greatest impact,” advises Baylor. “Does a large percentage of the employee base have student loans? Do employees report low levels of personal and emergency savings?”
- Stay on top of future changes: “One of the most important provisions of SECURE 2.0 is coming online in 2025: Companies with new 401(k) plans will be required to auto-enroll all eligible employees into the plan at a minimum contribution rate,” says Baylor. “Mandatory auto-enrollment/auto-escalation for new plans is a significant stride in the right direction, presenting opportunities for workers to get into the habit of saving and build wealth over time.”