What is SECURE 2.0 and how are employers reacting

Throughout 2022, there has been legislative activity on Capitol Hill that can impact retirement plans. 

In March, the House passed the Secure a Strong Retirement Act of 2022 (“SSRA”). And in June, two Senate committees approved bills that can be seen as companions to SSRA: the Finance Committee’s Enhancing American Retirement Now Act (“EARN Act”) and the Health, Education, Labor, and Pensions Committee’s Retirement Improvement and Savings Enhancement to Supplement Health Improvements for the Nest Egg Act (“RISE & SHINE Act). 

Collectively, the Senate and House bills are often referred to as “SECURE 2.0." As part of our Hot Topics in Retirement and Financial Wellbeing survey, we asked employers for their perspective on some of the provisions most applicable to their defined contribution plans. In general, employers seem keen on many of the provisions.

1. Increase catch-up amounts

In 2022, workers aged 50 and older are permitted to make a catch-up contribution of $6,500. The SSRA increases this limit for people aged 62–64 to $10,000. 

The EARN Act has similar provisions but changes the ages to 60–63. In addition to permitting higher contribution limits, the SECURE 2.0 provisions will require catch-up contributions to be made on a Roth basis. 

The RISE & SHINE Act would require the Roth provision to apply only to workers making more than $100,000, adding additional complexity and payroll complications.

Increase the catch-up amount for older individuals

2. Optional treatment of Roth employer contributions

The SECURE 2.0 provisions will allow a plan to have workers elect to receive matching contributions on a Roth basis. The EARN Act expands the language to include non-matching contributions but restricts the amounts to only fully vested contributions. 

This avoids the situations where employees pay taxes in the year of the contribution, but then forfeits the amounts upon termination. One-quarter of employers are very interested in this provision.

Allow employer matching contributions to be made on a Roth basis

3. Treat student loan payments as elective deferrals for matching contributions

The SECURE 2.0 provisions seek to expand the IRS’s view that employer contributions to defined contribution plans can be made for workers who are making student loan repayments. 

The IRS has commented favorably about this, but only through a private letter ruling. Overall, two-thirds of employers are interested in this provision should it become law.

Permit employers to contribute to retirement plans for employees who are repaying student loans

4. Penalty-free withdrawals for domestic abuse

This provision would allow domestic abuse victims to receive a penalty-free withdrawal from the retirement plan in an amount up to $10,000. Most companies say they’re interested in the provision, but almost 40% said they are either unsure or not interested.

Enable penalty-free withdrawls in case of domestic abuse

5. Decreased service requirement for long-term, part-time workers

Under current law, 401(k) plans must allow participation to people who work at least 500 hours per year for 3 consecutive years. 

The SECURE 2.0 provisions reduce the number of consecutive years to 2 years. Almost one-third of employers say that this does not apply to them because they either have few part-time employees or they already have eligibility rules that permit this. 

Among the remaining group, most employers say they are not interested.

Allow people who work at least 500 hours in 2 consecutive 12-month periods to contribute to the plan

This data was collected in September 2022 and is based on survey responses from 90 organizations employing three million workers.

Stay tuned for more details on SECURE 2.0 and its impact on employers.