Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0

February 8, 2023 | Article | 6 min | Business Insights

Summary of Key retirement and Tax Provisions

On December 29, 2022, the Consolidated Appropriations Act of 2023 was signed into law. The Act, referred to as SECURE 2.0, includes important provisions affecting retirement savings plans. These provisions offer many new benefits to employers and employees which are designed to make it more attractive for employers to offer retirement plans and to improve retirement outcomes for employees.

Below is a summary of selected provisions with potentially broad effects. Employers may need to consult with appropriate legal counsel and other professionals to assess what changes may be relevant to their circumstances. For questions, please contact your Relationship Manager.

Provision Summary
Catch-Up Contributions Increased.
(Section 109):

Participants age 50 and older can contribute an extra $7,500 per year annually in 2023 into their 401(k) account. Beginning January 1, 2025, this amount will increase to $10,000 per year (indexed for inflation) for participants age 60 to 63.

Roth Catch-up Contributions.
(Section 603)

Also, effective January 1, 2024, all catch-up contributions for participants earning over $145,000 annually (in the prior year) must be made on a Roth (after-tax) basis.

Optional Roth Treatment of Employer Contributions.
(Section 604)

Effective as of December 29, 2022, employers may amend their plans to permit employees to elect that employer matching and non-elective contributions are made as Roth (after-tax) contributions if they are 100 percent vested when contributed to the plan. HTLF is waiting on further clarification.

Delays Required Minimum Distributions (RMDs).
(Section 107)

Effective January 1, 2023 the requirement to begin taking RMDs will increase from age 72 to age 73, and then to age 75 effective January 1, 2033. In addition, the penalty for not taking a timely RMD is reduced from 50 percent of the amount required to be withdrawn to 25 percent, and to 10 percent if corrected within two years.

Immediate Incentives for Participation.
(Section 113)

Currently, employers can only provide matching contributions as an incentive to participate in a retirement savings plan. Effective for plan years beginning January 1, 2023, employers may offer modest financial incentives, such as gift cards, which may help increase participation. However, any financial incentives should be of de minimis amounts and cannot be paid with plan assets. Prior to implementing such financial incentives, please discuss with your Relationship Manager as this may impact compensation.

Automatic Enrollment* with Automatic Escalation**
(Section 101)

Employers who start new retirement plans after December 29, 2022, will be required to automatically enroll employees in their retirement plan at a rate of at least three percent, but not more than 10 percent of eligible wages. Contribution percentages must automatically increase by one percent on the first day of each plan year following the completion of a year of service until the contributions are at least 10 percent, but no more than 15 percent of eligible wages. Employees must be given the opportunity to opt out of these provisions. Employers will have until January 1, 2025, to implement this plan design. HTLF is waiting on further clarification.

*Note: An Automatic Enrollment plan must allow employees to withdraw automatic contributions and any earnings within no more than 90 days of the first contribution without being subject to the 10% penalty on early withdrawals. New existing companies (in business for less than three years) and employers with 10 or fewer employees are excluded from this requirement.

**Note: Exceptions apply for governmental and church plans, businesses with 10 or fewer employees, and employers that have been in business for less than three years.

Expanded Credit for Retirement Plan Administrative Costs for New Startup Plans.
(Section 102)

Currently, employers with less than 100 employees may be eligible for a three-year start-up tax credit of up to 50 percent of administrative costs, with an annual limit of $5,000. Effective for taxable years beginning January 1, 2023, SECURE 2.0 increases this credit to 100 percent of qualified start-up costs for employers with up to 50 employees. An additional credit of up to $1,000 per employee for eligible employer contributions may apply to employers with up to 50 employees but will phase out from 51 to 100 employees.

Treatment of Student Loan Payments for Matching Contributions.
(Section 110)

Effective plan years beginning January 1, 2024, student loan payments can be treated as retirement contributions to qualify 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. Employers may rely on the employee to certify annually as to the amount of their qualifying student loan payments.

Emergency Savings Accounts Linked to Retirement Plans.
(Section 127)

Effective January 1, 2024, retirement plans may offer linked "emergency savings accounts" that permit non-highly compensated employees to make Roth (after-tax) contributions to a savings account within the retirement plan. Balances in an emergency savings account must be eligible for distribution at least once per month. Withdrawal transactions are penalty-free and do not need to be substantiated, e.g., to show a qualifying emergency cause. This provision addresses a common objection to participation in retirement savings. For instance, if an employee fears that they may need any retirement contributions for unforeseen emergencies. HTLF is waiting for further clarification.

Note: Employers may automatically opt employees into emergency savings accounts at no more than three percent of eligible wages. Employees can opt out of participation. No further contributions can be made if the savings account has reached $2,500, or a lesser limit established by the employer. Once the cap is reached, additional contributions can be directed to the employee's Roth Defined Contribution plan account (if they have one) or it can be stopped until the balance falls below the limit.

  • No employer contributions are permitted.
  • Employee contributions to an emergency savings account must be eligible for the same matching contributions that apply for elective deferrals.
  • Matching contributions are made to the retirement plan – not to the emergency savings account.
  • Upon termination of employment, any emergency savings account can be converted to another Roth account within the plan or can be distributed to the participant.
Withdrawals for Certain Emergency Expenses.
(Section 115)

Generally, an additional 10 percent tax applies to early distributions from a tax-preferred retirement account, such as 401(k) plans and 403(b) plans. In addition to the emergency savings account option described above, effective January 1, 2024, the Act provides an exception for certain distributions for emergency expenses, which are generally unforeseen immediate financial needs relating to personal or family emergency expenses. Only one distribution is permissible per year of up to $1,000, and a taxpayer has the option to repay the distribution within three years. No further emergency distributions may be made during the three-year repayment period until any amounts previously taken are repaid. The employer may rely on an employee's written certification that the employee is facing a qualifying emergency personal expense, absent actual knowledge to the contrary. HTLF is waiting for further clarification.

Expanded Eligibility for Long-Term, Part-Time Employees. (Section 125)

Currently, employees who work between 500 and 999 hours for three consecutive years must be allowed to participate in their company's retirement plan. Effective for plan years beginning on or after January 1, 2025, the SECURE 2.0 act reduces the time period to two years.

Note: This does not apply to employees who participate in collectively bargained plans, or to nonresident aliens.

Saver's Match.
(Section 103)

Effective for taxable years beginning after December 31, 2026, lower-income employees will be eligible to receive a federal matching contribution of up to $2,000 per year that would be deposited into their retirement savings account. The matching contribution is 50 percent of the employee's contributions but is phased out as income increases (for example, between $41,000 and $71,000 for married, filing jointly; $20,500 to $35,500 for single taxpayers, etc.). This match will replace the current Saver's Credit. HTLF is waiting for further clarification.

Retirement Savings "Lost and Found."
(Section 303)

The Act establishes an online searchable database, within two years of enactment, that will allow a participant or beneficiary to search for contact information for plan administrators of plans in which the participant or beneficiary may have a benefit. Plans will be required to share information with the Department of Labor to be included in the database. HTLF is waiting for further clarification.

Facilitation of Error Corrections.
(Section 305)

The Act expands the self-correction system known as the Employee Plans Compliance Resolution System ("EPCRS") to allow more types of errors to be corrected internally and to exempt certain failures to make required minimum distributions from the excise tax. There are also new rules for correcting overpayments. HTLF is waiting for further clarification.

Next Steps

HTLF RETIREMENT PLAN SERVICES is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of plan administration so that you can focus on running your business. HTLF RETIREMENT PLAN SERVICES will continually inform you as each applicable provision becomes effective.

This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. HTLF RETIREMENT PLAN SERVICES encourages readers to consult with appropriate legal and/or tax advisors. For a section-by-section summary of the provisions read here.

Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.