PRM Consulting

Retirement Impact of SECURE 2.0

Washington D.C. Michael Rhim

On December 30, 2022, President Biden signed into law new legislation known as SECURE 2.0. The legislation, also known as the Securing Strong Retirement Act of 2021, is an extension of the original legislation that went into effect in 2021. The legislation has several changes that will affect current and future retirement plans. Below is a brief summary of the major changes. 

  1. New 401(k) and 403(b) plans must automatically enroll employees at an employer contribution rate of 3% or more. This is for new plans, however,  if your plan does not currently have auto enrollment, it’s something that you may want to consider and PRM can assist in this process. The new requirement becomes effective after 12/31/24.

  2. The legislation increases the age for beginning the required minimum distributions to age 73, then goes up in 10 years to age 75. The new requirement is effective now for calendar years after 12/31/22.

  3. The legislation increases the annual contribution catch-up limit for employees who are between ages 60 and 63, to $10,000 (or 50% more than the age 50 catch-up index amount in the year 2025). Currently, the catch-up limit for all employees over age 50 is $7,500 in 2023. The new legislation only increases the amount for the noted age groups. The legislation is effective for calendar years after 12/31/24. 

  4. The legislation will allow employers to use matching employer contributions for employees who make contributions to student loan repayments. Student loan payments have kept employees from participating in matching plans due to paying off student loans. This legislation will allow employers to make matching contributions to match what the employee is making for student loans, within the plan design contribution amount. The new legislation is effective for plan years after 12/31/23.

  5. The legislation allows penalty free emergency withdrawals for immediate and personal financial needs, up to $1,000 on a calendar year basis. There’s no 10% penalty tax on the distribution. The legislation is effective for plan years after 12/31/23.

  6. The legislation increases the small balance force out at termination, from $5,000 to $7,000. This means plans with balances under $7,000 can be forced out of the plan. This potentially helps you as the employer from continuing to maintain small balances of terminated employees. Plans must be updated to add this feature and the effective date is 12 months after the plan is amended to add the feature.

There are other changes in this legislation, such as catch-up contributions for ROTH contribution, changes to hardship withdrawals, and penalty free withdraws for domestic abuse cases, to name a few.  PRM stands ready to assist as needed as you examine your plan for future changes and compliance, so feel free to give us a call.