SECURE Act 2.0: Employer Savings Plans

Employers, large and small, play a role in helping individuals save and plan for retirement. It’s no surprise that the Secure Act 2.0, which seeks to reform how Americans prepare for retirement, includes provisions that effect employers. Many of the new provisions target small businesses.

The following Secure Act 2.0 provisions help employers offer effective retirement plan programs:

• Better Retirement Plan Start-Up Incentives (2023): Small businesses can take retirement plan start-up credits to offset up to 100% of their plan start-up costs (versus a prior 50% cap).
• A New “Starter 401(k)” Plan (effective 2024): The Starter 401(k) provides small businesses that lack a 401(k) plan a simpler path to establishing one. Features will include streamlined regulatory and reporting requirements; auto-enrollment for all employees starting at 3% of their pay; a $6,000 annual contribution limit, rising with inflation; and a deferral-only structure, meaning the plan does NOT permit matching employer contributions.
• Expanded SIMPLE Plan Contributions (effective 2024): Under certain conditions, SECURE 2.0 allows for additional employer contributions to, and higher participant contribution limits for SIMPLE IRA plans.
• New Household Employee Plans (2023): Families can establish SEP IRA plans for their household employees, such as nannies or housekeepers.
• Small Perks (2023): Until now, employers were prohibited from offering even small incentives to encourage employees to step up their retirement savings. Now, de minimis perks are okay, such as a gift card when a participant increases their deferral amount.

Remember, while employers and the government play a role in helping individuals save for retirement, much of the preparation ultimately falls on each and every American. Whether you’re self employed or working for a large corporation, your employer sponsored savings plan is only one piece of the financial independence puzzle. ShankerValleau can help with a holistic review of your financial life, including your employer retirement plan.

Coming up, we’ll take a closer look at the Secure Act 2.0 provisions impacting Roth retirement accounts and required minimum distributions.