Opportunities SECURE 2.0 Brings
SECURE 2.0 includes over 90 provisions offering more flexibility to those saving for retirement. All these changes may seem overwhelming. The good news is, many of these provisions are optional and could help you attract and retain employees.
Provisions that could benefit you and your employees:
2023:
Incentives for Contributing - Optional
Employers now have the option to use incentives to entice their employees to participate in the employer’s retirement plan. These incentives can be small items that are not taxable, such as raffles, t-shirts, mugs and other gifts that cost less than $100. Benefits of getting employees to participant in a plan include enhanced employee satisfaction, increased tax benefits and even lower plan fees.
Roth Contributions- Optional
SECURE 2.0 has amended the current Internal Revenue Code (IRC) that required all employer contributions to be made on a pre-tax basis. Employers may now decide if they will allow employees to determine whether employer contributions are pre-tax or Roth. One advantage to offering Roth options is to allow employees to reduce taxation in retirement rather than now.
2024:
Student-Loan Matching- Optional
Employers may make matching contributions, subject to plan limits, for qualified employee student loan payments. This allows an employer to help an employee, who is unable to contribute due to ongoing loan payments, to accumulate retirement savings while paying their student loan debt.
As an example, let’s think about a 25-year-old employee making $30,000 per year while paying a monthly student loan payment of $125. With their loan payments, they are not comfortable also saving money for retirement. This new law allows the employer to consider the student loan payments in the same way they consider other employee contributions. That means they can "match" them with employer contributions into its 403(b) plan. If the employer had a dollar-for-dollar matching contribution up to a maximum of 5% of salary, then the employer could contribute a dollar-for-dollar match up to $1,500 ($30,000 salary x 5%). Each $125 loan payment would be eligible for $125 of employer matching contributions each month, though the employee is not contributing to the plan. If that loan took 10 years to repay, the employer would have potentially contributed $15,000 on the employee's behalf, plus interest or investment growth.
The student loan repayment match may be a way for employers to differentiate themselves from the competition, especially in the new hire/new teacher markets. A school district could offer a matching dollar-for-dollar contribution, up to the district’s chosen threshold. This new match could be used alongside internal programs to promote longevity, attract specific job titles- like STEM positions, bus drivers, etc., reward tenured employees and more. This provision could also be used with an existing tuition reimbursement program. If an employee wants to get their master’s or doctorate, their employer could incentivize them with a program to help them repay their loans at a higher rate if they are employed with the district.
2026:
Excess Deferrals for Highly Compensated Individuals- Required
According to a new provision, individuals who make catch-up contributions and made more than $145,000 the prior year must allocate the contributions to a Roth account in their employer’s plan. This may be a challenge for employers who do not have a Roth option. However, government entities may use this provision as an opportunity to establish a non-coordinating 457(b) plan that allows employees to defer an additional $23,000 of salary and amend their 403(b) plan to disallow catch-up contributions. This would eliminate the requirement to mandate catch-up contributions for highly compensated individuals to be made to a Roth account. By adding a 457(b) Plan, employees can double their standard deferral limit by employing two plans rather than one.
Here's a hypothetical example: An employee making $145,000+ who wants to defer the maximum amount on a pre-tax basis in a school with only a 403(b) Plan, would be limited this year to $23,000 (2024). However, since 457(b) Plans are “non-coordinating,” their deferral limit is not affected by the 403(b) Plan (unlike a 401(k)). This would allow the employee to defer $23,000 to their 403(b) and an additional $23,000 to their 457(b) without ever making catch-up contributions.
You Have Time
This may seem overwhelming, but the good news is- you have time! The SECURE 2.0 Act currently has a deadline of 2027 for governmental plans to amend their plan documents, regardless of which provisions you choose to implement. This allows you plenty of time to thoroughly review your plan. You can decide which opportunities are best to help you recruit and retain employees. Still have questions about SECURE 2.0? Visit this site.
This blog is up to date as of May 2024 and has not been updated for changes in the law, administration or current events.
