With more than 90 new provisions, the SECURE 2.0 Act of 2022 confronts plan sponsors with a number of mandatory provisions that take effect over a period of time. The good news is that most of the provisions are voluntary, and some are generating real interest across employers – especially small business owners.

An overview of provisions highlights the effort to incentivize small business retirement plans and to make it easier overall for Americans to save. Financial professionals may add value and potentially build business by clarifying the requirements and pointing out the business opportunities of the most significant piece of retirement legislation in years.

Three points to remember now that SECURE 2.0 is secured

1. The good: Startup tax credits
2. The bad: More complicated catch-up contributions
3. The tricky: Emergency savings plans  

The good: Startup tax credits

Building on tax credit expansions in the SECURE Act, the 2.0 version further expanded credits associated with certain recordkeeping and administrative costs for qualified plans. Notably, the Act removed a percentage limitation for some smaller businesses and established a new startup credit to reimburse portions of employer contributions. This new credit begins at 100% of contributions (with limits) up to $1,000 per participant, and phases down from there over five years from plan adoption.

These credits and benefits could make plan adoption much more cost effective than in the past — and could be a great conversational entry point with your clients. Which of your clients could benefit?

The bad: More complicated catch-up contributions

One of the more stringent new requirements, effective tax year 2024 and beyond, is that catch-up contributions, for those that earned $145,000 (indexed) or more in the prior year, must be made as after-tax Roth contributions – whether their regular contributions are pretax or not.

This poses issues for plan sponsors, adding administrative complexity around compliance as well as effort to determine which employees meet the earnings threshold. And where plans do not already offer a Roth catch-up option, they will need to consider establishing one – another area where financial professionals can offer guidance.

There may also be impacts for highly compensated individuals – such as business owners – who will be looking to financial professionals to help them understand their options. You might also take the opportunity to provide guidance on the change in required minimum distribution (RMD) age. It’s gradually increasing, from 72 last year, to 75 in 2033 – with down-the-line tax impacts to consider. Staying in front of clients on these provisions could help build rapport and save them trouble later. 

The tricky: Emergency savings plans 

SECURE 2.0 attempts to address Americans’ broad lack of savings with two key emergency savings provisions. Both raise some nuanced issues for plans.

Take the new emergency withdrawal provision, effective 2024, which allows eligible retirement plans to permit participants to take one in-service withdrawal per year up to $1,000 for certain emergencies without paying an early withdrawal penalty.  Once an emergency withdrawal is made, another cannot be made for three years unless the distribution is repaid. You might find some plan sponsors are concerned about easing access to and depressing retirement savings but, on the other hand, retirement accounts may be the only savings a participant has and could help buoy them through financial hardship. As a financial professional, you can help bring this complexity to light.

Another provision allows plans to establish employee emergency savings accounts (effective from 2024). With a maximum cap of $2,500, these are intended to provide non-highly compensated employees easy savings access with at least four fee-free withdrawal transactions per year. Account contributions can be matched into defined contribution (DC) plans and made through automatic enrollment and salary deferral up to 3%, but must be made on an after-tax Roth basis.

Here, you might help clients navigate the potential burden of additional notice and disclosure requirements. You may also want to guide clients on whether plan implementation would offer an opportunity to streamline all their automatic enrollment arrangements to a Roth basis.  

What else should you consider?
 

• Student loan contributions match

Effective from 2024, employers have the option to match contributions to workers’ qualified student loan repayments under the same formula used to match retirement contributions. It’s a potentially exciting allowance with implications for easing Americans’ student debt burdens. But it may not be practical for every plan. Discuss with your clients whether the potential advantages, such as talent acquisition and retention, will outweigh their potential costs in implementation and administration. And ask them whether self-certification might be sufficient to access the match, or will there be a higher bar imposed?
 

• To self-certify or not to self-certify
  

As with student loans, participant self-certification crops up throughout the Act as an option. While offering it may well relieve administrative burdens on the employer, it may also present challenges. Ask clients to review the goals and objectives of their plan: What role do they want to play in encouraging employee savings and what, if any, financial burden should participants demonstrate to access them? Is that a responsibility they want to take on? Will the lesser lift of self-certification outweigh any additional burden imposed by a particular provision, and could it open the gate to other potential issues?

If attracting and retaining talent is a top priority, these provisions and allowances may be more appealing. Whatever the case, clients are looking to you for guidance.

The path to preparedness

Regardless of complexity, each provision requires forethought and advance planning – and employers are asking about them now. Answering their questions can be a great opportunity for you to add value as you help clients think through the costs and benefits to their business.