Since it’s passing in 2022, SECURE 2.0 has been making significant transformations within the retirement landscape. Even now in 2024, we continue to see changes as a result of this law focused on improving retirement security for Americans. To help navigate these changes, California Pensions recently published a blog explaining how plan participants will be impacted this year. But what about plan sponsors? Fear not, because we have the details on how SECURE 2.0 is impacting you as well. Here’s how you’ll be affected by SECURE 2.0 in 2024 as well as how you can make sure you’re well-prepared for the future.
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SECURE 2.0: A Refresher
SECURE 2.0, or the Setting Every Community Up for Retirement Enhancement Act, is a bipartisan legislation designed to improve retirement security for Americans. It builds upon the original SECURE Act and introduces key provisions that will affect retirement plans in 2024. The main objectives of SECURE 2.0 include increasing retirement savings, expanding access to retirement plans, and enhancing plan features to better support retirement income.
SECURE 2.0 Changes Impacting Plan Sponsors in 2024
Key changes and requirements that plan sponsors need to be aware of in 2024 include:
Emergency Savings Withdrawal
Under SECURE 2.0, employers can provide an annual emergency savings withdrawal of up to $1,000. This withdrawal is exempt from early withdrawal penalties, providing participants with greater flexibility and access to emergency funds. If plan sponsors choose to offer this option, they must clearly inform their employees and ensure that their plan documents are updated to reflect this. Additionally, plan sponsors will need to establish processes to manage and track repayments over a three-year timeframe, ensuring adherence to new regulations.
Plan sponsors can choose to offer emergency withdrawals to help participants during times of financial stress.
Expanded Eligibility for Part-Time Employees
Currently part-time employees may only participate in employer-sponsored plans after working a minimum of 500 hours per year for three consecutive years. However, in 2025, SECURE 2.0 is expanding the eligibility criteria by lowering the years needed down to two. This change requires plan sponsors to review and potentially revise their plan’s requirements to accommodate part-time employees who may not have been previously permitted. Plan sponsors need to assess the impact of this expansion on their existing plans, including administrative processes, contribution matching, and employee communications, to ensure a smooth transition for newly eligible part-time employees.
Catch-Up Contributions
Previously, catch-up contributions could have been made either pre-tax or on a Roth basis. Going forward, all catch-up contributions to qualified retirement plans, such as 401(k), 403(b), and governmental 457(b) plans, will now be subject to Roth tax treatment. This means eligible participants will be required to make their catch-up contributions on a Roth basis rather than pre-tax. Employees earning $145,000 or less are exempt from this requirement. Plan sponsors need to educate participants about this increased opportunity to save more for retirement and update their plan documents to reflect the expanded catch-up contribution limits.
Compliance Requirements
With all the new SECURE 2.0 provisions, making sure your plan stays within compliance will be key going forward. As Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies in Cedar Rapids, Iowa, mentions for Plan Sponsor, “It’s important that plan sponsors and their advisers work closely with their recordkeepers and providers to identify new features that might work well for their plan and a course of action for adopting them.” This includes meeting updated reporting obligations, documentation of emergency savings withdrawals, and adherence to the newly expanded eligibility criteria. Plan sponsors should stay informed about these compliance changes and work closely with legal and retirement plan professionals to ensure that their plans remain compliant.
Review plan compliance criteria carefully to avoid costly penalties.
Steps to Prepare for SECURE 2.0
To effectively navigate the changes brought by SECURE 2.0, retirement plan sponsors should consider the following steps:
- Review and update plan documents: Evaluate your current plan documents to ensure they align with the new provisions of SECURE 2.0.
- Communicate with participants: Educate your employees about the changes and enhancements provided by SECURE 2.0 to ensure employees understand their options.
- Lastly…
Seek Professional Guidance on SECURE 2.0 from California Pensions
As retirement plan sponsors prepare for the changes brought by SECURE 2.0, it is crucial to have a trusted partner by your side. California Pensions understands the intricacies of retirement plan management and is committed to helping you navigate the evolving landscape with confidence.
Rely on our expertise to guide you through the implications of SECURE 2.0. Our team of retirement plan professionals will assist you in reviewing and updating plan documents, safeguarding your plan’s compliance with the new provisions. We will also help you effectively communicate the changes to your participants, so they understand their options and feel supported throughout the process.
Don’t face the changes brought by SECURE 2.0 alone. Trust California Pensions to be your partner in preparing for the future and ensuring that your retirement plan remains compliant and beneficial to your employees’ retirement goals.
For more information or to get expert support for your retirement plan, contact California Pensions today. Let us help you navigate the changes and optimize your retirement plan for 2024 and beyond.
