With the goal of making it easier for Americans to save money for retirement, Congress signed into effect the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act in December 2022.

The legislation affects businesses and employees across the country. There are more than 90 provisions that affect various aspects of retirement savings plans in the SECURE Act of 2022, so I’m going to highlight seven updates of note and what they mean for employers and employees.

1. Mandatory Automatic 401(k) Enrollment

Businesses with at least 10 employees will be required to automatically enroll their employees in a retirement savings plan. Employees will have the option to opt out of the plan. Automatic enrollment can be a powerful tool for increasing retirement savings rates because it removes the need for employees to proactively make a change. This kind of inertia can prevent employees from signing up for a plan.

2. Automatic Escalation of 401(k) Contribution Rates

Automatic escalation allows employers to increase an employee's contribution rate for their retirement plan by at least 1% per year, up to a maximum of 15%. The more workers save earlier in their careers, the more time that money has to compound by retirement age. The idea is that employees save more for retirement as their salaries increase, so the money is less likely to be missed, without requiring them to take action.

3. Expanded Eligibility for Some Part-Time Employees

Previously, employees who worked between 500 and 999 hours for three consecutive years were not eligible to participate in a retirement savings plan. The SECURE 2.0 Act reduces the 401(k) eligibility timeline for part-time employees to two years, starting Jan. 1, 2025. This change allows more employees to save for retirement — particularly those in industries with high turnover rates.

4. Increased Catch-Up Limits

The SECURE 2.0 Act increases catch-up limits for individuals aged 60-63. Catch-up contributions allow Americans nearing retirement age to make additional contributions to their retirement savings plans. Catch-up contribution limits for 60- to 63-year-olds are set to increase to $10,000 — 50% more than the regular limit for 2025.

5. Student Loan Repayment Matching Contributions

Often, younger employees aren’t contributing to retirement accounts because they’re directing funds to pay off student debt instead. Under the SECURE 2.0 Act, employers will be able to match an employee's qualified student loan debt payment with a corresponding contribution to their retirement plan account, starting Jan. 1, 2024. It starts funding retirement accounts while also allowing employees to pay off their student loans, which can be a significant financial burden.

6. Emergency Savings Accounts Within Retirement Plans

You might have heard about this piece of the SECURE 2.0 Act already. This provision allows employees to set aside a portion of their retirement savings for emergency expenses, such as medical bills or unexpected home repairs. While emergency savings accounts may reduce retirement savings rates in the short term, they can be a valuable tool for helping employees avoid debt and financial stress. The act allows for withdrawals of up to $1,000 once in a three-year period.

7. Federal Contribution Match for Low-Income Employees

Starting in 2027, the federal government will match contributions to retirement accounts for individuals who fall under certain income thresholds. It provides a financial incentive for low-income employees to save for retirement, ideally helping to reduce income inequality.

Determine How These Changes Affect You

The SECURE 2.0 Act of 2022 introduces significant changes to retirement savings plans for employees and employers. The changes are intended to make it easier for employees to save for retirement and to provide incentives for employers to offer retirement savings plans.

You aren’t alone if you’re feeling unsure about how to implement these changes or how your business needs to shift its operations to be compliant. At Certum Solutions, we’ve been studying up on the law so we can help business owners stay on top of the changes. If you use QuickBooks Payroll, we can get your software set up to meet the retirement savings account requirements. If you want to talk through how your particular business is affected, book some time with our team. We look forward to chatting it through with you!