What is the Secure 2.0 Act of 2022?

In December 2022, the US Congress passed the Secure 2.0 Act, which improves individuals’ ability to save for retirement, expands access to retirement plans, and eases plan administration for employers.

Among its highlights, the bill increases retirement savings through automatic features, enables matching contributions for student loan payments, permits older workers to save more and stay invested longer, simplifies disclosures, and provides credits for small businesses starting new plans.

According to a document released by the Senate Finance Committee, one of the main reasons

Many Americans reach retirement age with little or no savings because too few workers are offered an opportunity to save for retirement through their employers. However, even for those employees who are offered a retirement plan at work, many do not participate. But automatic enrollment in 401(k) plans – providing for people to participate in the plan unless they take the initiative to opt out – significantly increases participation.

If signed by the President, Section 101 of the Act requires 401(k) and 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible (and the employees may opt out of coverage). The initial automatic enrollment amount is at least 3 percent but not more than 10 percent. Each year thereafter that amount is increased by 1 percent until it reaches at least 10 percent, but not more than 15 percent.

All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than 3 years), church plans, and governmental plans. Section 101 is effective for plan years beginning after December 31, 2024.

Changes outlined in Section 102:  Modification of credit for small employer pension plan startup costs

According to documents released by the Senate Finance Committee, The 3-year

Small business startup credit is currently 50 percent of administrative costs, up to an annual cap of $5,000. Section 102 makes changes to the credit by increasing the startup credit from 50 percent to 100 percent for employers with up to 50 employees. Except in the case of defined benefit plans,

an additional credit is provided. The amount of the additional credit generally will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This full additional credit is limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. The applicable percentage is 100 percent in the first and second years, 75 percent in the third year, 50 percent in the fourth year, 25 percent

in the fifth year – and no credit for tax years thereafter. Section 102 is effective for taxable years beginning after December 31, 2022.

Do you have questions about how the Secure 2.0 Act of 2022 would impact your business if it’s signed into law? We can help. Call Hugues, Snell, & Co., PA today to schedule a free, no-cost consultation.