Employers play a key role in helping their employees prepare for retirement. Retirement savings plans are an invaluable benefit to employees and can help attract and retain top talent. Understanding the implications of the SECURE 2.0 Retirement Savings Act is crucial. Here’s what employers with existing retirement savings plans need to know about the impact of SECURE 2.0:
- Extension of required minimum distributions. Beginning January 1, 2023, the Secure 2.0 Act raised the age that participants are required to take minimum distributions to age 73.
- In 2033, this will increase to age 75.
- Additionally, penalties for participants who didn’t take the required minimum distributions decreased from 50% down to 25%.
- Finally, beginning in 2024, participants will not be required to take minimum distributions from Roth accounts.
- Expansion of withdrawals. Beginning January 1, 2024, under SECURE 2.0, participants are now able to take advantage of additional withdrawals without penalty.
- Participants can withdraw up to $1,000 a year for emergency expenses without paying the 10% penalty for early withdrawal.
- Domestic abuse survivors can withdraw the lessor of $10,000 or 50% of their account balance without incurring the 10% penalty for an early withdrawal.
- Natural disaster victims can withdraw up to $22,000 from their account without the 10% early withdrawal penalty.
- Employees are now able to self-certify hardship distributions rather than having to provide applicable support for their employer or third-party administrator to approve the distribution.
- Audit requirements and mandatory distributions. Beginning January 1, 2023, the SECURE 2.0 provisions changed the way the number of plan participants was counted to determine if an audit was required. Previously, plans with more than 100 total eligible participants were required to have an audit. Under SECURE 2.0, plans with more than 100 participants that have account balances in the plan will require an audit.
- This new way of counting participants goes hand in hand with the new rule for mandatory distributions. Beginning January 1, 2024, plans can now adopt a rule that states that participants who have account balances under $7,000 will be required to be distributed to the participant. Previously, this threshold was $5,000. If plans are able to distribute participants’ account balances, they may be able to fall under the 100-participant requirement for an audit, as well as reduce potential fees and time related to plan administration for employers.
Retirement savings plans are an important benefit to most employees. Ultimately, offering a retirement savings plan can be a key tool when recruiting employees. Understanding the potential implications of the SECURE 2.0 Retirement Savings Act is essential for employers who administer a retirement savings plan, and your advisors at WG are here to help. By staying informed, communicating effectively with participants, and adapting retirement plans as needed, employers can continue to support employees on their journey toward financial freedom in retirement. Please contact your trusted WG advisor with any questions on how we can help you to best implement these changes.
