The Secure Act 2.0, also known as the “Setting Every Community Up for Retirement Enhancement Act,” is a new law passed in the United States in 2021. The purpose of the law is to help people save more money for retirement and make it easier for them to access their retirement savings when needed.
Background on the Secure Act 2.0:
Before the Secure Act 2.0 was passed, there were already laws requiring employers to offer employees retirement plans, such as 401(k)s. However, these laws did not always make it easy for people to save enough money for retirement. This law was created to address these issues and make it easier for people to save for their future.
Key Provisions of the Secure Act 2.0:
The Secure Act 2.0 includes several important provisions to help people save more money for retirement. Some of the key provisions of this law include the following:
- Increasing Retirement Savings Contribution Limits: The Secure Act 2.0 increases the number of money people can contribute to their retirement savings accounts each year. For example, the amount of money people can contribute to 401(k)s each year is increased from $19,500 to $26,000.
- Requiring Plan Sponsors to Offer Long-Term Part-Time Employees Access to Retirement Plans: The Secure Act 2.0 requires employers to offer retirement plans to long-term part-time employees who have worked at least 500 hours per year for three consecutive years. This is designed to help more people have access to retirement savings plans, even if they do not work full-time.
- Allowing Penalty-Free Withdrawals for Birth or Adoption: The Act will enable people to withdraw money from their retirement savings accounts without penalty when they have a child or adopt a child. This is designed to help people cover the costs of raising a child.
- Facilitating Lifetime Income Options: The law makes it easier for people to turn their retirement savings into a stream of income they can use for the rest of their lives. It is known as a “lifetime income option.”
- Expanding Tax Credits for Small Businesses Offering Retirement Plans: Act provides tax credits to small businesses that offer retirement plans to their employees. The act is designed to encourage more small businesses to offer these plans.
- Providing 529 Education Savings Plan Expanded Use: The Act allows people to use money from their 529 education savings plans to pay for special education and training expenses, such as apprenticeships and certification programs.
Impact of the Secure Act 2.0 on Employers and Employees:
The Secure Act 2.0 will have different implications for employers and employees. Here are some of the ways that the act law will affect these groups:
Employers:
- The Secure Act 2.0 will impact employers, including Increased Administrative Costs and Compliance Burden: It will require employers to follow new rules and regulations, which may increase their administrative costs and compliance burden.
- Greater Responsibility in Helping Employees Prepare for Retirement: The Secure Act 2.0 will require employers to help their employees prepare for retirement by offering retirement plans and providing information about retirement savings options.
- Opportunities to Provide More Comprehensive Benefits Packages: The Secure Act 2.0 may also provide employers with opportunities to offer more comprehensive benefits packages to their employees, which could help them attract and retain top talent.
Employees:
- The Secure Act 2.0 will also impact employees, including increased opportunities to Save for Retirement with Increased Contribution Limits. This law increases the money people can contribute to their retirement savings accounts each year, which may give employees more opportunities to save for retirement.
- Greater Flexibility in Withdrawing Funds for Certain Life Events without Penalties. The Secure Act 2.0 also allows people to withdraw money from their retirement savings accounts without penalty when they have or adopt a child. This law may give employees greater flexibility in using their retirement savings for these critical life events.
How To Prepare for Compliance with The Secure Act 2.0:
Suppose you are an employer or a plan administrator. In that case, it is vital to understand your responsibilities under the Secure Act 2.0 and to develop procedures and policies to ensure compliance with the new law. Here are some steps you can take to prepare for compliance with the Secure Act 2.0:
- Understanding Your Responsibilities as a Plan Sponsor or Administrator: The first step in preparing to comply with the Secure Act 2.0 is understanding your responsibilities as a plan sponsor or administrator. This act may include reviewing the provisions of the Act and determining how they apply to your organization.
- Developing Procedures and Policies for Fulfilling Requirements of The Secure Act 2.0: Once you understand your responsibilities under the Secure Act 2.0, you should establish procedures and policies to ensure that you are meeting all of the requirements of the new law. This act may include updating employee benefit plans, educating employees about retirement savings options, and implementing new record-keeping and reporting requirements.
Benefits Advisors’ Role in Assisting Employers and Employees with Compliance:
Benefits advisors can play a crucial role in helping employers and employees comply with the Secure Act 2.0. Benefits advisors are experts in employee benefits and can guide how to meet the new law’s requirements and help employers. Employees understand their rights and responsibilities under the Act.
Comparing The Secure Act 2.0 with Other Retirement Legislation and Regulations:
The Secure Act 2.0 is not the only law that affects retirement savings in the United States. Several other laws and regulations also play a role in regulating retirement plans and benefits. Some of the key differences between the Secure Act 2.0 and other retirement legislation and regulations include the following:
- The Employee Retirement Income Security Act (ERISA): The ERISA is a federal law that sets standards for private-sector employee benefit plans, including retirement plans. The Secure Act 2.0 builds on the protections provided by the ERISA by providing additional protections for employees and making it easier for people to save for retirement.
- The Pension Protection Act (PPA): The PPA is a federal law passed in 2006 and includes retirement plans and benefits provisions. This law consists of requirements similar to the PPA, such as expanding tax credits for small businesses that offer retirement plans. Still, it also includes several new requirements not found in the PPA.
The Secure Act 2.0 makes it easier for them to use their retirement savings. It allows people to put more money in their retirement accounts each year and take money out of their retirement accounts without a penalty when they have a child or adopt one.
The law affects employers and employees in different ways, like increasing the cost of following the rules for employers and giving employees more opportunities to save for retirement and flexibility in using their retirement savings.
Employers and plan administrators should understand their responsibilities under this law and create procedures and policies to follow the new law. Benefits advisors can also help employers and employees follow this act.
This act builds on other retirement laws and regulations and has new provisions. It helps people prepare for retirement and use their retirement savings when needed.