What’s new with SECURE 2.0 and workplace retirement plans?

Several provisions of SECURE 2.0 are taking effect and are changing plan sponsor behavior, a self-described “qualified plan nerd” said during a recent webinar.

Kevin Gaston is director of plan design with Vestwell. He gave a rundown on what’s new with SECURE 2.0 and workplace plans.

SECURE 2.0 became law on Dec. 29, 2022, but although some of its provisions became effective on that date, other provisions won’t take effect until 2033, Gaston said.

Some provisions of 2.0 were so challenging, the IRS paused them from taking effect to give the agency a chance to issue guidance, he said. Those paused provisions include:

• Highly compensated employees were supposed to be allowed to make a catch-up contribution only as a Roth catch-up contribution but that was delayed until 2026.
• Roth employer contributions were allowed as of Jan. 1, 2023, but there was no guidance issued on taxation.
• A new tiered catch-up for employees aged 60 through 63 comes into play next year.
• 403(b) plans can now use collective investment trusts as permitted in the original SECURE Act, after they needed to go back for signature on Securities and Exchange Commission rules.

Retirement plans are becoming holistic wellness tools, Gaston said.

With so many options available in 401(k) plans, what does it mean for plan sponsors? Gaston said the addition of a pension-linked emergency savings account, student loan match and a number of new withdrawal provisions has made retirement plans more of a one-stop shop, for better or for worse.

Most new provisions are optional, he noted. Plans still should be designed around the needs of the company and its demographics. However, he predicted, the number of available plan options means we will continue to see workplace retirement plans with a greater share of saver wallet, and workplace plans will be a larger part of an employee’s overall financial wellness.

“We won’t know how these provisions will impact people for a few years,” Gaston said. “For a vast majority of Americans, their workplace 401(k) is their main savings vehicle.”

Gaston provided an analysis of some of the options available to employees.

• Emergency savings accounts can be offered as part of the retirement plan or outside the plan. There is more complexity involved with offering it inside the plan. The goal is to stabilize workers’ financial security, reduce turnover and preserve or encourage retirement savings for workers who are on the financial edge.
• Qualified student loan matching allows a company match on employee student loan repayments as if those dollars were 401(k) contributions. The goal is to remove workers’ choice of paying off loans or saving for retirement.
• A company can repay up to $5,250 of student loans directly without it being recognized as income to the employee. This is a provision of the CARES Act.
• 529 plans are taxable as a fringe benefit. Up to $35,000 can be rolled over into a Roth plan later if the funds are not needed or used for education.

Tax credits to small businesses are confusing and many small-business owners aren’t aware of them unless their broker educates them, Gaston said. He said a recent survey showed 28% of them knew there were tax credits for starting a company retirement plan. Small-business owners generally believe retirement plans are too expensive or that their companies are too new to offer such benefits, he added.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.

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