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Retirement Planning > Saving for Retirement

More Secure 2.0 Act Provisions Are Coming

By John Manganaro

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What You Need to Know

  • The 2022 legislation is still in the process of implementation.
  • A retirement account database should be up and running next year.
  • Experts hope the full package of reforms can push the needle on Americans’ retirement readiness.

The landmark retirement reform legislation referred to as the Secure 2.0 Act become law in 2022, but several key provisions have yet to take effect. Some incoming changes are likely to help clients more easily navigate the transition from work to retirement.

The expanded Setting Every Community Up for Retirement Enhancement legislation included more than individual 100 provisions focused on updating and reforming the U.S. retirement plan system. Many apply primarily to workplace retirement plans, but there are also changes affecting wealth management clients and small-business owners.

As explored in an article in the latest issue of the Journal of Financial Planning, these provisions have effective dates ranging from early 2023 through 2026 and beyond. Several will come online at the start of next year, and the five researchers hope the full package of reforms will push the needle on Americans’ retirement readiness,

Authors of the article were professors Patrick Ryle and Michael D’Tiri of Dalton State College; Mark McKnight and Brett Bueltel of the University of Southern Indiana; and Christian Koch, of North Carolina State University.

“As the Secure 2.0 Act imposes numerous new obligations on employers, it also provides several key benefits that advisors and small business clients may want to take advantage of,” the researchers write. “Financial planners, CPAs and other advisors must be prepared to counsel small business clients, family businesses and retirement plans on navigating the many challenges of the Secure 2.0 Act.”

Retirement Account Lost and Found

Among the retirement challenges identified by the lawmakers behind the Secure 2.0 Act was the increasing mobility of today’s workforce. At the same time, more workers are using individual-style accounts to save for retirement.

“As working patterns have changed and as individuals change jobs today at a much higher rate than in generations past, many accounts get lost in the transition when people change jobs,” the researchers write.

For this reason, the Secure 2.0 Act directs the Labor Department to create a searchable retirement plan database to assist individuals in locating and retrieving accounts associated with former employers.

“While it is the DOL that must set up and operate the lost and found database, it is employers who must report and populate this database,” the authors point out.

To this end, employers must begin to provide the DOL with key information starting Jan. 1, including the name of their retirement plan and the name and address of the plan administrator. Employers must also provide ongoing updates to the DOL when there is a change in name, address or identity of the plan administrator.

In addition, employers must also provide information about the taxpayer ID number and contact information of each participant and former participant in the plan who was reported as “terminated and deferred vested” during a plan year. The same applies for any workers who receive a deferred annuity contract during the year, whereby contact information for the annuity vendor must also be provided.

Catch-Up Contributions and Auto-Enrollment

Beginning in 2025, the Secure 2.0 Act increases annual catch-up contribution limits to either $10,000 or an amount that is 50% greater than the higher imposed catch-up contribution limit for those ages 60 to 63.

Additionally, the rules related to part-time workers’ retirement account contributions have also changed. In the past, employers must have permitted part-time workers who have completed at least 500 hours of service to participate in the company’s retirement plan after three years. Starting next year, this is reduced to two years.

Finally, new automatic enrollment requirements are slated to take effect in 2025, such that employers starting plans will generally be required to enroll workers at an initial contribution rate of 3% of earnings per year, with annual automatic deferral increases of 1% up to at least 10%. There is an exception for small businesses with 10 or fewer employers, the authors point out, and there is an exemption for current 401(k) and 403(b) plans.

Current Secure 2.0 Provisions

Many provisions of the Secure 2.0 Act have already taken effect and demand advisors’ and clients’ attention, according to the authors.

These include an increase in the required minimum distribution age from 72 to 73, with another increase to 75 scheduled for 2033. In 2023, the Secure 2.0 Act also reduced the penalty for missed required minimum distributions from 50% to 25%, with the chance to pay only a 10% penalty if the mistake is corrected within two years.

Also starting last year, the legislation permitted employers’ vested contributions to go to Roth-style accounts instead of pretax traditional accounts. Another key change allows employers to provide de minimis incentives to employees for participating in retirement plans, such as gift cards or other small rewards.

More recently, provisions in the Secure 2.0 Act that took effect in January 2024 require higher earners with wages above $145,000 to direct any “catch up” contributions to Roth-style accounts. Also through the Secure 2.0 Act, Congress rolled out a new pathway for employers to match their employees’ student loan repayments with retirement account contributions.

“As the Secure 2.0 Act is wide-ranging in its scope, planners must remind clients of the many retirement-related obligations imposed by the act and key provisions that first go into effect [this year] and beyond,” the researchers write. “Complying with and taking advantage of its provisions is a genuine and current challenge for clients and their advisors.”

Credit: Adobe Stock

John Manganaro

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