Does my 401(k) Plan Need to Include Auto-Enrollment? The Answer to That and Other Provisions Modified by the SECURE 2.0 Act
SECURE 2.0 which was put into effect December 29, 2022 as a part of a $1.7 trillion omnibus spending bill. More than 100 current provisions governing retirement plan regulations are affected by this legislation and it is unlikely your plan or day-to-day administration is affected by most of them. However, there are a number which may have significant impacts to your plan (Spoiler Alert: Auto-enrollment is not required for plans established prior to December 29, 2022) which you should be aware of and more that we feel are at least interesting to know about to either consider for your plan or know for sure don’t affect your plan. So, without any further ado, please find below everyone’s favorite way to digest new information: A table!
Table of Most Significant Provisions from SECURE Acts
|
Provision |
Description |
Effective Date |
Adoption type |
|
Long-term part-time employees (LTPT) |
New classification of employee created which requires salary deferral contribution access to be provided to those who are aged 21 and work at least 500 hours in three consecutive determination periods* since 2021 or two determination periods* since 2023. LTPT employees vest at a rate of 500 hours regardless of plan specifications. Plans using elapsed time (e.g., 3 month wait) to determine eligibility may find that no employee will be classified this way. * An employee's first determination period is their first anniversary of hire but most plans shift subsequent periods to match the plan year (which means some hours are considered twice). Employees in these plans hired late in the plan year may, therefore, find that they are able to meet two 500 hour periods in less than a two year period! (E.g., 700 hours Nov '24 - Nov '25 with 500 hours Jan '25 - Nov '25 will become LTPT Jan '26) |
1/1/2024 |
Automatic |
|
Automatic enrollment and escalation |
New 401(k) and 403(b) plans are now required to include auto-enrollment and escalation provisions by the 2025 plan year. Initial deferral percentage at least 3% and escalation of 1%/yr. to at least 10% (each is subject to a cap). Exemptions include plans covering 10 or fewer employees. |
1/1/2025 |
Automatic for plans established after 12/29/22 |
|
Roth catch-up contributions |
Catch-up contributions for participants earning at least $145,000 (indexed) in prior plan year must be Roth. (Additional specifics regarding proper administration of this rule are needed from the IRS and not available as of the date of this article) |
1/1/2024 |
Automatic |
|
Higher catch-up contributions |
Catch-up contributions for employees aged 60-63 are increased to $10,000 or 150% of indexed catch-up amount |
1/1/2025 |
Automatic |
|
Roth match contribution |
Participants have option to have 100% vested match contributions made as Roth instead of pre-tax |
1/1/2023 |
Optional |
|
New plan start-up credit |
Tax credit for new 401(k) plans covering 50 or fewer employees is increased to 100% of admin costs for first 3 years of plan (inquire with your tax professional about your specific circumstances) |
1/1/2023 |
Automatic |
|
Tax credit for employer contributions |
For new 401(k) plans covering 50 or fewer employees, tax credit to offset company contribution for every employee earning less than $100,000 up to $1,000 (gradually phased out for plans covering more than 50 employees) |
1/1/2023 |
Automatic |
|
Required Minimum Distributions (RMDs) |
Gradual increase in age for RMDs from age 73 to age 75 based on birthdate
|
1/1/2023 |
Automatic |
|
Roth 401(k) accounts exempt from RMDs |
RMD amount will be reduced now that Roth money types are ignored when making determination |
1/1/2024 |
Automatic |
|
Auto-cash out (aka, “Force out”) |
Mandatory auto-cash out amount for terminated participants increased from a $5,000 vested balance to $7,000 (not all plans ignore rollover contributions from this determination) |
1/1/2024 |
Automatic for plans utilizing this provision |
|
Hardship Withdrawal Expansion |
Not subject to early withdrawal penalty, may be repaid to the plan within three years, subject to employee certification. · Emergency withdrawals- Maximum $1,000, one per year but no other in-service distributions for three years unless it’s repaid · Qualified Birth and Adoption Distributions (QBAD)- Maximum $5,000/child · Domestic Abuse Withdrawal- Lesser of 50% of vested benefit or $10,000 |
1/1/2024 |
Optional |
|
Student loan payments |
Allows employer to treat student loan repayments as deferrals for purposes of providing a benefit under the plan. Benefits are characterized as a company match and subject to non-discrimination testing separate from other non-excludible participants. |
1/1/2024 |
Optional |
|
SIMPLE IRA plans may be replaced mid-year by a Safe Harbor 401(k) plans |
Until this change, SIMPLE IRAs must remain in place throughout the plan year and require formal notification to employees by November 1st to make a change for the upcoming year |
1/1/2024 |
N/A, no effect to existing plans |
|
Starter 401(k) plans (alternative to most State-mandated programs) |
401(k) plan for companies who don’t sponsor any qualified plan; all employees auto-enrolled 3%-5% up to IRA limit; no employer contributions allowed |
1/1/2024 |
N/A, no effect to existing plans |
For many reasons, plan amendments are not available but sponsors should expect to adopt them before the end of the 2024 plan year. Many provisions listed above (e.g., Roth match contributions) are not recommended for adoption simply due to the lack of comprehensive guidance available. Until any of these changes are adopted by your plan through formal amendment or “good faith election”, you will need to operate your plan according to the amendments until they’re adopted.
Fortunately, you don’t have to sift through all of these changes by yourself! Benefit Resources is a TPA firm that was founded to help people retire with confidence. We care about your business and want your retirement program to not only provide a fantastic benefit to owners and employees alike but also swiftly progress through any scrutiny applied by the IRS or DOL.
Our staff is committed to staying current on all legislative and regulatory requirements and is busy studying SECURE 2.0 as it becomes increasingly clarified so we can help you if you have any questions. No questions? Good. We want you to attend to your business and we will be in touch with you if there’s something we think you should know. Have a question or concern? We look forward to hearing from you! Email your dedicated administrator or admin@benefit-resources.com, call us at (916) 922-3200, or visit our website at https://www.benefit-resources.com/.
