The federal government continues to release guidance on the new retirement savings plan law. Plan sponsors need to stay on top of both mandatory and optional provisions and embrace the opportunities presented by SECURE Act 2.0.
Signed into law on December 29, 2022, SECURE Act 2.0 was designed to expand and simplify the benefits of saving for retirement. Below are some of the changes that will impact sponsors in 2024 and 2025.
Impacts in 2024
1. Increase in cash-out limit.
For plan years starting Jan. 1, 2024, the maximum participant account balance a plan sponsor can transfer without consent was increased to $7,000 from $5,000. This is an optional provision, and the plan document would need to be amended for this increase.
2. Eligible distributions for domestic abuse victims.
This provision allows participants who are victims of domestic abuse to self-certify their status and request a distribution of up to the lesser of $10,000, indexed for inflation, or 50% of the participant’s account. This distribution would not be subject to the 10% early withdrawal additional tax. This is an optional provision, and the plan document would need to be amended.
3. Withdrawals for emergency expenses.
This provision allows retirement plans to permit participants to self-certify to request distributions for unforeseeable or immediate financial needs for necessary personal or family emergency expenses. Distributions are limited to one per year up to $1,000 and are not subject to the 10% early withdrawal additional tax. Participants have the option to repay within three years, during which no further emergency distributions would be allowed unless repayment occurs. This is an optional provision, and the plan document would need to be amended.
4. In-plan emergency savings accounts.
Beginning in 2024, employers will be able to offer automatic enrollment in an emergency savings account for participants, who could make after-tax Roth contributions to that savings account within the plan. The amount is not to exceed $2,500. This is for non-highly compensated employees. Withdrawals can occur at least once per month for any reason; they do not need to prove an emergency to make a withdrawal. This is an optional provision, and the plan document would need to be amended.
5. Student loan “matching” for retirement plans.
Plan sponsors can now provide matching contributions based on the combination of employee deferrals and qualified student loan payments. This can be adopted by any plan type with a deferral-based employer match. A participant would need to provide evidence of the student loan payments. This is an optional provision, and the plan document would need to be amended.
6. Spousal beneficiaries treated as plan participants for required minimum distribution (RMD) purposes.
This provision permits spousal beneficiaries of deceased participants to elect to have the RMD rules applied as if the surviving spouse were the deceased employee or owner. This is a mandatory provision.
Impacts in 2024 and 2025
7. Long-term, part-time eligibility.
There were two changes to the long-term, part-time employee provision, one for 401(k) plans for the 2024 plan year and another for 2025 and subsequent years.
- 2024 – 401(k) plans in effect before 2021 will be subject to the three-year eligibility service requirement for the 2024 plan year and the vesting service before 2021 will be disregarded.
- 2025 – Plan eligibility is expanded for long-term, part-time workers after two years of service. This is a mandatory provision.
We're here to help
These are just some of the SECURE 2.0 provisions we have been discussing with our clients. If you have any questions or would like to discuss the components of SECURE 2.0, our Retirement Plan Relationship Managers are available as your resource. Contact us at 1-800-651-9227.
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