The biggest takeaways from SECURE 2.0

The new year brought the signing of SECURE 2.0 into law, one of the most significant pieces of retirement legislation. It’s important progress that offers individuals more access to retirement savings plans as well as benefits to sponsors to support those plans.

Many of the 92 provisions in the bill won’t take effect until 2024 and after. Even with a long timeline, there are some key points of the bill to be aware of.

Provisions for plan sponsors

• Small Employer Pension Plan Start-up Credit for Adopting MEP: Clarifies that a start-up credit is available if an employer adopts its first plan by joining an existing first plan by joining an existing multiple employer plan (“MEP”).
• 403(b) Multiple Employer Plans: Starting in 2023, certain 403(b) plans may be operated as MEPs.
• Pooled Employer Plans (“PEPs”) Modification: Starting in 2023, PEPS will be allowed to designate a named fiduciary (other than an employer in the plan) to be responsible for collecting contributions.
• Starter 401(k)s: Starting in 2024, an employer that does not sponsor a retirement plan can of­fer a starter 401(k) plan (or safe harbor 403(b) plan). It requires that all employees are default enrolled into the plan at a 3% to 15% of compensation deferral rate.
• Safe harbor 401(k)s: Starting in 2024, employers that do not sponsor a retirement plan will be able to replace a SIMPLE retirement account with a safe harbor 401(k) plan at any time of the year.
• Required automatic enrollment: New 401(k) and 403(b) plans must include automatic enrollment of at least 3% starting in 2025. Existing plans are grandfathered.
• 403(b): Allowed to Invest in CITs: The tax code is amended to enable 403(b) plans to invest in collective investment trust funds (“CITs”). However, changes to securities laws are necessary to implement it.

Provisions for participants

• RMDs: The required minimum distribution age was changed from 72 to 73 starting in 2023, and to 75 starting in 2033.
• Catch-up contribution limit: Increased for ages 60 to 63. Age requirements for traditional IRAs have been eliminated.
• Catch-up contribution must be Roth: Starting in 2024, for participants with less than $145,000 in wages the prior year, catch-ups under a 401(k), 403(b) plan, or governmental 457(b) plan must be Roth contributions.
• Qualifying Longevity Annuity Contracts (QLACs) Modifications: Allows individuals to buy QLACs to satisfy all of their RMD requirement up to $200,000. (Indexed after 2024).
• Emergency savings: Starting in 2024, plan sponsors may link in-plan emergency savings accounts, a “sidecar”, to individual account plans.
• Emergency withdrawals: Limited emergency withdrawals are permitted for unforeseeable or immediate financial needs. This is optional for plan sponsors starting in 2024.
• Student loan matching: Starting in 2024, employers will be able to match employee student loan payments with matching payments to a retirement account.
• Retirement savings lost and found: Directs the Department of Labor (“DOL”) to create an online, searchable database to collect information about benefits owed to missing, lost or non-responsive participants and beneficiaries in tax-qualified retirement plans. It will also assist these plan participants and beneficiaries in locating those benefits.

The bottom line

BlackRock’s purpose is to help more and more people experience financial well-being. We believe that people deserve financial security across their lifetime, and that retirement should be within reach for everyone. SECURE 2.0 is important progress towards that goal. As important as this legislation is, further advances will require cooperation across the entire retirement ecosystem.