The SECURE 2.0 Act and its impact on the retirement plan landscape

Featuring Ronald Ulrich, QKA, QPA, CPC, VP of Product Consulting and Compliance, ADP Retirement Services

October 1, 2023

Ronald Ulrich, QKA, QPA, CPC, VP of Product Consulting and Compliance, ADP Retirement Services, is responsible for delivering products and services to plan sponsors to help them maintain their retirement plans in compliance with all applicable IRS and Department of Labor regulations. He also works with plan sponsors to design and implement plan features that will enhance the overall health of their plan and streamline administration.

Q Why are the SECURE Acts such landmark retirement plan legislation?

A The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was broad legislation aimed at employer-sponsored plans and brought significant change to retirement savings plans in an effort to encourage more Americans to save for their future. The SECURE 2.0 Act provisions enacted on Dec. 29, 2022, do even more by making it easier and more affordable than ever for your business clients to start a retirement plan. For these reasons and more, it’s crucial for financial professionals, plan sponsors, and employees alike to understand the law’s impact on retirement plans.

Q What tax incentives are available for employers who want to start up a retirement plan for their employees?

A The start-up tax credit was updated as part of the SECURE 2.0 Act, and now small business employers with up to 50 employees are eligible to receive a credit covering 100% (up from 50%) of administrative expenses (up to $5,000) for the first three years of a new plan. There’s also an additional credit for employers with 100 or fewer employees that would help offset the cost of employer contributions to a retirement plan for up to $1,000 per employee. Business clients that don’t offer a retirement plan as part of their benefits package may wish to consider taking advantage of the new tax credit by establishing a plan for their employees. Furthermore, if your clients live in one of 18 states that now require employers to participate in a state-sponsored retirement program if they don’t already offer a retirement plan, you may want to help them understand their obligations and let them know that they have options when it comes to ensuring compliance with their state mandate.

Q How is SECURE 2.0 helping more Americans get on the path to retirement readiness?

A There are several required provisions that will affect employer-sponsored retirement plans moving forward. Let me highlight a few of the important ones that seek to benefit plan participants and their ability to save:

Automatic enrollment — 401(k) or 403(b) plans established after Dec. 29, 2022, are required to include an automatic enrollment feature (with the option to opt out) beginning in 2025.
Expanded catch-up contributions — The annual catch-up contribution amount for participants ages 60–63 is increased to $10,000 or 150% of the regular limit on catch-up contributions, if higher, beginning in 2025. Because of another change in SECURE 2.0, starting in 2024, catch-up contributions must be made as Roth contributions for any employee earning over $145,000 in FICA wages for the prior year with the same employer.
Required minimum distributions (RMDs) — The age for required minimum distributions increased from 72 to 73 in 2023 and goes up to 75 in 2033. In addition, the penalty for not taking an RMD is reduced to 25% (in some cases 10%).