What can we help you find?
When it comes to your business’s employee retirement plan, understanding the SECURE 2.0 Act is crucial, especially in terms of offering the right options.
The Securing a Strong Retirement Act (commonly referred to as SECURE 2.0) builds upon the foundations laid by the original SECURE Act, strengthening retirement security for American workers by making it easier for businesses to offer retirement plans. In a nutshell, SECURE 2.0 introduces additional incentives and requirements to bolster employee participation and savings rates.
When it comes to your business, understanding SECURE 2.0 is especially important if you wish to pursue compliance, improve employee benefits, qualify for tax incentives and maintain a competitive advantage in attracting and retaining talent. To help, we’ve assembled seven key takeaways you should note about SECURE 2.0.
Key Business Takeaways for SECURE 2.0:
SECURE 2.0 mandates that new retirement plans include automatic enrollment for eligible employees at a minimum rate of 3%. (Automatic enrollment is optional for existing plans.) Additionally, the contribution rate must automatically escalate by 1% each year until it reaches 10%. This provision encourages more employees to save for retirement without requiring proactive engagement.
For employees aged 60-63, SECURE 2.0 increases the catch-up contribution limit to $10,000 for 401(k) plans and $5,000 for SIMPLE individual retirement accounts (IRAs). This optional provision allows employees nearing retirement to build their savings significantly, helping to close any gaps in retirement funding.
The act requires that the eligibility threshold for part-time workers to participate in 401(k) plans be lowered. After two years of service (rather than three), part-time employees must be allowed to contribute, thereby expanding access to retirement savings.
Don’t forget to track your part-time employees’ hours! By doing so, you can stay informed about their eligibility for this provision.
Additionally, SECURE 2.0 gives employers the option of offering matching contributions to employees who are paying off student loans. This innovative approach especially helps younger employees balance debt repayment and retirement savings, making it more appealing to save for the future – and stay in their current role!
For plan years beginning after December 31, 2023, as an exception to a previous rule, employers can terminate a SIMPLE IRA plan at any time during the calendar year and replace it with a safe harbor 401(k) plan. The safe harbor 401(k) plan must simply take effect the day after the SIMPLE IRA is terminated.
Note: The early distribution tax (25%) doesn’t apply to distributions from a SIMPLE IRA within the first two years of participation, as long as the assets are rolled into a 401(k) or 403(b) plan.
For tax purposes, the legislation allows employees to choose to have employer contributions made as fully vested Roth contributions. While employers have the option to offer this feature alongside Roth deferrals, it’s not mandatory.
Note: Employer contributions, whether matching or nonelective, are not classified as compensation but are included in an employee’s taxable income.
To help reduce the number of small balances in retirement plans, SECURE 2.0 raises the force-out limit for former employees from $5,000 to $7,000, allowing plans to automatically transfer or cash out account balances that fall below this amount. Ultimately, this change simplifies the administrative task of maintaining contact information for former participants.
The SECURE 2.0 Act represents a significant step toward improving retirement security for American workers. By understanding and implementing the key takeaways we’ve outlined, your business can strengthen employee benefits, foster a culture of savings and ultimately contribute to the long-term financial wellness of the workforce.
To gain deeper insights into how SECURE 2.0 affects your retirement offerings, contact us! A knowledgeable retirement plan advisor can help answer your questions and walk you through the next best steps for your business.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Gate City Bank and Gate City Investment Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using the name Gate City Investment Services, and may also be employees of Gate City Bank. Check the background of investment professionals associated with this site on FINRA's BrokerCheck. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Gate City Bank or Gate City Investment Services. Securities and insurance offered through LPL or its affiliates are:
| Not Insured by FDIC or Any Other Government Agency | Not Bank Guaranteed | Not Bank Deposits or Obligations | May Lose Value |
Gate City Bank ("Financial Institution") provides referrals to financial professionals of LPL Financial LLC ("LPL") pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services.
Please visit LPL Disclosure or LPL Financial Form CRS for more detailed information.
The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
701-551-8219
Email