Keep up with today’s trending topics: VISIT THE INSIGHT CENTER

Key Elements of Secure Act 2.0 that Affect Employee Benefit Design and Operation

Employee Benefits, Financial Services

Sweeping changes for retirement plans were signed into law on December 29, 2022, as part of the Consolidated Appropriations Act. Specifically, Division T is known as SECURE 2.0, and it builds upon the foundation laid by the 2019 “Setting Every Community Up for Retirement Enhancement” Act (now referred to as SECURE 1.0).

SECURE 2.0 contains 92 provisions, which can be viewed as almost universally positive. The information below identifies what we feel are the most impactful provisions for Human Resources Professionals and Plan Fiduciaries to consider in employee benefits strategy and operations.

Top 5 Provisions Effective in 2023

Give small incentives for contributing to a plan – Prior to the Act, employers were prohibited from giving any financial incentives to employers to encourage them to contribute to a plan, other than matching contributions. The Act permits employers to provide de minimis incentives – such as low dollar gift cards – to help improve participation in 401(k) and 403(b) plans.

Allows Roth matching contributions – Plan sponsors now have the option to allow employees to elect to have some or all of their contributions be treated as after-tax Roth contributions (currently all matches are required to be pre-tax). This provision is effective immediately.

Self-certification for hardship withdrawals – Allows a plan sponsor to rely on an employee’s self-certification that they incurred a safe harbor hardship event, and not in excess of the amount needed. In addition, a plan sponsor may continue to rely on the participant’s representation that the amount necessary and that the participant does not have any other means of meeting the financial need. The self-certification option will likely significantly reduce the plan sponsor’s administrative burden of reviewing and approving hardship requests. In addition, 403(b) plan hardship rules have now been changed so they are more similar to 401(k) hardship rules.

Creates a start-up tax credit as an incentive for smaller businesses to offer a retirement plan – The 3-year small business startup credit is currently 50 percent of administrative costs, up to an annual cap of $5,000. This provision increases the startup credit from 50 percent to 100 percent for employers with up to 50 employees.

Creates an additional tax credit for smaller businesses as an incentive to offer a retirement plan – Except in the case of defined benefit plans, an additional tax 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, and 25 percent in the fifth year— and no credit for tax years thereafter.

Top 3 Provisions Effective in 2024

Authorizes student-loan matching – Currently, many employees may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans. This provision permits an employer to make matching contributions under a 401(k) plan or 403(b) plan, with respect to “qualified student loan payments.” A qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee. Governmental employers are also permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments. For purposes of the nondiscrimination test applicable to elective contributions, a plan is allowed to test separately the employees who receive matching contributions on student loan repayments.

Require Catch-Up Contributions to be made on an after-tax Roth Basis – The Act will mandate that catch-up contribution made by participant with wages in excess of $145,000 for the prior calendar year be made to the plan’s Roth account. Once this provision becomes effective, affected participants will not have the option of choosing between pre-tax deferrals or Roth contributions.

Emergency savings accounts linked to individual retirement plan accounts – This provision allows employers to offer their non-highly compensated employees an emergency savings account that is linked to their workplace retirement account. Employers may automatically opt employees into these accounts at no more than 3 percent of their salary, and the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer). Once the cap is reached, the additional contributions can be directed to the employee’s Roth defined contribution plan (if they have one) or stopped until the balance attributable to contributions falls below the cap. Contributions are made on a Roth-like basis and are treated as elective deferrals for purposes of retirement matching contributions with an annual matching cap set at the maximum account balance ($2,500 or lower as set by the plan sponsor). The first four withdrawals from the account each plan year may not be subject to any fees or charges solely on the basis of such withdrawals. At separation from service, employees may take their emergency savings accounts as cash or roll it into their Roth defined contribution plan (if they have one) or IRA.

Top 4 Provisions Effective in 2025 and Beyond

Improves coverage for part-time workers – The SECURE Act currently requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans. The SECURE Act provision provides that, except in the case of collectively bargained plans, employers maintaining a 401(k) plan must have a dual eligibility requirement under which an employee must complete either 1 year of service (with the 1,000-hour rule) or 3 consecutive years of service (where the employee completes at least 500 hours of service). This provision reduces the 3 year rule to 2 years, effective for plan years beginning after December 31, 2024. This provision also provides that pre-2021 service is disregarded for vesting purposes, just as such service is disregarded for eligibility purposes under current law, effective as if included in the SECURE Act to which the amendment relates. This provision also extends the long-term part-time coverage rules to 403(b) plans that are subject to ERISA.

Increase the catch-up amount for individuals age 60, 61, 62 and 63 – Starting in 2025 act raises limit to 50% more than the regular catch-up limit. For example if catch up limit is $8,000 in 2025, those 60 to 63 will be able to do $12,000.

Replace the Saver’s Credit with the Saver’s Match – Starting in 2027 the Act will replace the current Tax Savers Credit with a match from the federal government equal to 50% of plan or IRA contributions, up to $2,000. The match will be deposited into the taxpayer’s plan account or IRA.

Requires automatic enrollment (new plans only!) – This provision 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 of the employee’s pay. Each year thereafter that amount is increased by 1 percent until it reaches at least 10 percent, but not more than 15 percent. There is an exception for small businesses with 10 or fewer employees, new businesses (those that have been in business for less than 3 years), church plans, and governmental plans. This provision is effective for plan years beginning after December 31, 2024. In addition, please note that all current 401(k) and 403(b) plans are grandfathered.

Key Takeaway:

If you have questions about how these provisions can enhance your employee benefit design, recruitment or retention strategy, please reach out to an M3 Financial consultant to discuss.


Investment advisory services offered through M3 Financial, a registered investment advisor and separate entity from M3 Insurance.

Sources: GRP Financial and JP Morgan

Back to Insight Center