What Employers Can Expect from the Secure Act 2.0

The House Ways and Means Committee recently passed the SECURE Act 2.0—a follow-up to the popular SECURE Act passed in 2019. While it has a way to go before it becomes law, the SECURE Act 2.0 has several provisions designed to help Americans plan for a financially secure retirement. The bill also includes several provisions to help small employers provide quality retirement plan solutions for their employees. Here’s what you need to know about the proposed bill.

In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act. Among other things, it improved the ability of small employers to offer retirement plans, and extended retirement plan access to part-time employees.

The Secure Act 2.0

In May 2020, the House Ways and Means Committee passed the SECURE Act 2.0—the Securing a Strong Retirement Act of 2021. The bill still must go to the full House for a vote before it’s passed on to the Senate for a vote. So, it has a way to go before it becomes law. However, it has received strong bipartisan support, which makes it likely to become law, though some of the provisions could be changed or omitted in the process.

Regardless, if passed into law, the bill would significantly impact the ability of small employers to expand retirement plan coverage. In addition to expanding coverage and increasing retirement savings, the SECURE Act would allow employers to make a matching contribution to employee’s retirement account based on the amount of their student loan payment. Here are some of the key provisions you should know about:

Expands retirement plans auto-enrollment

Under the new bill, employers will be required to automatically enroll participants in 401(k) and 403(b) plans when they become eligible, though employees may opt out of coverage. Upon enrollment the initial automatic contribution amount would be at least 3 percent and can be increased by 1 percent until it reaches 10 percent. Current plan participants are grandfathered and there is an exception for new businesses and businesses with fewer than 11 employees.

Increases small employer pension plan startup credit

The current credit available for employers with up to 50 employees who start a pension plan equals up to 50 percent of the plan’s administrative costs to a maximum of $5,000. The credit would be increased to 100 percent. An additional credit would be available for defined contribution plans equaling the amount of employer contributions up to $1,000 per employee. The full credit is available in the first two years, declining to 75 percent in the third year, 50 percent in the fourth year, and 25 percent in the fifth year.

Employer matching of student loan payments

Recognizing that employees saddled with student loan debt are often unable to save for retirement, the SECURE Act 2.0 would allow employers to make a matching contribution for 401(k), 403(b), and SIMPLE plans based on the amount of an employee’s qualified student loan payment.

Multiple employer 403(b) plans

The Secure Act 2.0 opens the door for 403(b) plans to participate in multiple employer plans (MEPs), including pooled employer plans (PEPs). Participants will be protected under the “one bad apple” rule in which any violations made by one employer won’t affect the tax treatment of plans.

The proposed bill also includes other provisions to enhance individuals’ ability to save for retirement by boosting catch-up provisions and extending the age at which individuals would be required to take withdrawals from their IRA or 401(k)plan.

The SECURE Act 2.0 introduces some significant enhancements to employers’ ability to provide quality retirement plans to their employees. While Congress may modify some of the proposed provisions during the legislative process, the bill enjoys broad bipartisan support, which is good news for retirement savers.

Read other Business situation analysis articles