SECURE 2.0 is Now Law. How Does That Impact Retirement Planning? Part Two

Transcript of Podcast Episode 213

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute.  In todays’ episode, SECURE 2.0 is Now Law. How Does That Impact Retirement Planning?  Part two.

In our previous episode, we examined how SECURE 2.0 affects individuals.  Today we take a look at how the new law affects small businesses.

For small businesses:

• All newly established 401(k) and 403(b) plans must contain provisions to automatically enroll employees at a minimum deferral of 3% but no more than 10%, unless they opt out. The plan must also have provisions to automatically escalate a participant’s deferral percentage each year by 1% until a contribution limit of 10% is reached, unless they opt out.  There are some exceptions for new businesses less than 3-years old, small businesses with 10 or fewer employees, government and church plans.
• The original SECURE Act gave startup businesses with up to 100 employees a tax credit equal to 50% of administrative costs, capped annually at $5,000. Beginning in 2023, eligible businesses with 50 or fewer employees can qualify for a credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan. Eligible businesses with 51 to 100 employees remain subject to the original SECURE Act provision.
• Beginning in 2023, eligible businesses with up to 100 employees may be entitled to a tax credit based on their employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five (5) years and is subject to further reductions for employers with 51 to 100 employees.
• The original SECURE Act required that employees who had at least 500 hours of service in each of three consecutive years be permitted to make elective deferrals to an employer’s 401(k) plan (but with no requirement for an employer to provide matching or other employer contributions). SECURE 2.0 shortens the eligibility requirement to two years effective for plan years beginning after December 31, 2024.
• Effective for plan years beginning after 2023, 401(k), 403(b) and nongovernmental 457(b) plan sponsors are able to make matching contributions to employees for certain “qualified student loan payments” made by the employees for higher education expenses and to have these matching contributions treated as regular matching contributions for discrimination testing purposes. This provision is intended to make it easier for employers to provide employer-matching contributions to employees who are paying off student loans in lieu of making retirement plan contributions.
• Employers have traditionally been prohibited from providing small incentives (such as Amazon or Starbucks gift cards) to employees to contribute to a retirement plan, other than matching contributions. SECURE 2.0 loosens this restriction and allows employers to provide “de minimis financial incentives” that are not paid for with plan assets. SECURE 2.0 does not include any guidance on what constitutes a “de minimis financial incentive,” which presumably will be left to guidance from the Internal Revenue Service.
• Beginning in 2024, 401(k) and 403(b) plans are allowed to create “emergency savings accounts” that permit non-highly compensated employees to make Roth after-tax contributions to a special savings account within the retirement plan. Balances in an emergency savings account must be eligible for distribution at least once per month, and contributions cannot be made to an emergency savings account that would cause the balance to exceed $2,500 (adjusted for inflation after 2024), or a lesser amount established by the plan sponsor. In addition, an employee’s contributions to the emergency savings account must be eligible for matching contributions at the same matching rate established under the plan for elective deferrals. However, the matching contributions are not made to the emergency savings account.
• Beginning in 2024, the spousal attribution rules will not apply to spouses with separate businesses in community property states. This change will affect controlled groups rules, which can be a complex analysis for individuals who own multiple trades or businesses.

As we previously indicated, this is just a quick summary of a few of the many provisions that impact the retirement planning goals of individuals, as well as the retirement plans sponsored by employers.  There are many other provisions to consider which may impact your unique situation. Contact your Security Mutual Life insurance advisor today to review your goals and objectives for yourself, your family, or for your business.  Your SML insurance advisor will work closely with your tax and legal advisors to create a plan that best fits your goals and objectives.

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The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time.

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