Employers need to understand the opportunities and requirements created by the latest legislation governing retirement savings plans.
The SECURE 2.0 Act of 2022 continues the federal government’s campaign to promote retirement readiness. A follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, SECURE 2.0 has more than 90 provisions. Among other things, the law will ease plan administration, make it wise for some businesses to increase plan options, and — for those currently not offering a plan — significantly reduce the cost of starting one.
A look at some key provisions
- Time to add a Roth component to your plan? A Roth vehicle allows participants to invest after-tax dollars and make withdrawals tax-free in retirement. SECURE 2.0 includes provisions making Roth retirement savings vehicles more accessible for both plan sponsors and participants.
For example, the new law enables plan sponsors of 401(k), 403(b) and governmental 457(b) plans to allow participants to designate employer matching or nonelective contributions as Roth contributions. What’s more, for taxable years beginning after Dec. 31, 2023, catchup contributions under an employee retirement plan other than a SIMPLE IRA or SEP plan will have to be made on a Roth basis for participants making more than $145,000 in the prior calendar year (indexed for inflation). And any other participants will have the option of making catchup contributions on a Roth basis. Also, starting in 2024, participants will no longer be required to take minimum distributions from Roth plan accounts.
Considering SECURE 2.0 changes such as these, sponsors that currently don’t offer a Roth provision should be talking to service providers about updating their plan to include one.
- Tax incentives for starting retirement plans. For many businesses, the cost of establishing a qualified employee retirement plan has seemed prohibitive. There are administrative expenses to establish a plan document, as well as investment and record keeping costs.
Expanded tax credits instituted by SECURE 2.0 can help companies overcome the cost barrier. For example, for employers with 50 or fewer employees, the law increased the maximum tax credit from 50% to 100% of start-up costs incurred in the plan’s first three years up to an annual maximum of $5,000.
- Rules that ease plan administration. The new law includes an array of mostly technical rules designed to reduce operational complexity — everything from eliminating annual notices to eligible nonparticipating employees to self-certification for hardships, overpayment relief, expanded error correction and increased cash-out limits.
- Student loan matching. The law addresses the challenge of saving for retirement while still paying off student loans. Beginning in 2024, plan sponsors may treat qualified student loan payments as elective deferrals for purposes of matching contributions. In other words, if a company typically matches up to 3% of an employee’s retirement plan deferral, starting next year it can match student loan payments up to the same amount, even if the employee doesn’t make any retirement plan contributions. Employers can tout student loan matching to both attract and retain employees.
Talk to your record keeper
Retirement plan record keeping is a tight-margin business that’s been consolidating due to the ongoing need for technology investment. Many smaller record keepers can’t keep up. In the wake of SECURE 2.0, plan sponsors should start to have regular conversations with their current record keepers and ask them: Do you have the financial ability to make the type of technology enhancements required by the new law?
More clarity coming
Many provisions of SECURE 2.0 will be going into effect over the next several years, and some will require further clarification by the IRS and the Department of Labor. To learn more about provisions you can take advantage of — and to stay up to date on federal guidance regarding the new law — ask your banker to put you in touch with one of our Retirement Plan Services professionals, or contact our Trust and Asset Management team directly at 1-800-651-9227.
As another way of monitoring developments related to Secure 2.0 and other retirement plan issues, we also recommend you regularly visit plansponsor.com, a free online resource with articles and answers to frequently asked questions.
The information, views, opinions and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation. Hancock Whitney Bank offers investment products, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank is a wholly owned subsidiary of Hancock Whitney Corporation.
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