On Dec. 29, 2022, President Biden signed the Consolidated Appropriations Act into law which also contained the SECURE 2.0 Act of 2022. This legislation may have the most sweeping impact on businesses, organizations, retirement plans and service providers of any law since the passage of ERISA in 1974.

With nearly 100 provisions, SECURE 2.0 has a broad impact. Among the more impactful changes of this legislation are:

1. Small business tax credit

Eligible businesses with 50 or fewer employees can qualify for a credit equal to 100 percent of the administrative costs for sponsoring a company retirement plan. The original SECURE Act gave businesses with up to 100 employees a tax credit equal to 50% of administrative costs, capped annually at $5,000. Eligible businesses with 51 to 100 employees remain subject to the original SECURE Act provision.

• • Applicable plans: 401(a) and 401(k) plans
  • Effective date: Jan. 1, 2023

2. Auto enrollment and escalation

The legislation requires businesses or organizations adopting a new startup 401(k) or 403(b) to automatically enroll eligible employees (who do not opt out, of course) at a rate of 3% minimum and 10% maximum. Such plans must also provide for an automatic escalation feature that increases employee contributions by 1% per year up to at least 10% (capped at 15% of compensation). The plan must permit an employee to make withdrawals no later than 90 days after the date of the first contribution. For safe harbor plans, the cap on permissible auto escalation is 15%; for non-safe harbor plans, the cap on permissible auto escalation is 10% prior to 2025; for 2025 and later years, the cap is increased to 15%.

• • Exclusions: This provision doesn’t apply to: (1) 401(k) and 403(b) plans that were adopted before 1/1/2025; (2) church or governmental plans; (3) small employers with 10 or fewer employees and new business that are in existence for less than three years.
  • Effective date: Jan. 1, 2025

3. Required minimum distributions (RMD)

Currently, the age for RMD is 72. It would be increased to 73 in 2023 and 75 in 2033.

• • Applicable plans: 401(a), 401(k), 403(b), 457(b) plans and traditional IRAs
  • Effective date: Jan. 1, 2023

4. Catch-up contributions

Individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation. (The catch-up amount for people age 50 and older in 2023 is currently $7,500.)

One caveat: If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.

• • Applicable plans: 401(k), 403(b), and governmental 457(b) but cannot be used in addition to 457(b) special catch-up
  • Effective date: Jan. 1, 2025

5. Part-time employees

Part-time employees are required to work two consecutive years and complete at least 500 hours of service in each year to be eligible, a change from the original SECURE Act’s three years of service rule.

• • Applicable plans: 401(k) and 403(b)
  • Effective date: Jan. 1, 2025

6. Student loan matching 

The law will allow employers to make matching contributions to an employee’s 401(k) or 403(b) per their plan provisions when an employee makes a student loan repayment, thereby allowing the employee to pay off their student loan and save for retirement at the same time.

• • Applicable plans: 401(k), 403(b) and governmental 457(b) plans and SIMPLE IRAs
  • Effective date: Jan. 1, 2024

7. Emergency withdrawal 

Plans may permit one withdrawal per calendar year up to $1,000 for an unforeseeable or immediate financial need relating to necessary personal or family emergency expenses. This emergency personal expense distribution is exempted from the IRS 10% premature distribution penalty tax. The distribution may be repaid within three years and a subsequent distribution cannot be made until the repayment is completed. The plan administrator may rely on a certification by an employee seeking an emergency withdrawal unless the plan administrator has actual knowledge to the contrary.

• • Applicable plans: 401(a), 401(k), 403(b), governmental 457(b) plans and traditional IRAs
  • Effective date: Jan. 1, 2024

8. Auto-portability

Currently, employers may “cash out” terminated participant balances under $5,000 (which the Act has increased to $7,000) and, unless the participant elects otherwise, rollover cash outs over $1,000 to an established IRA. The law permits a recordkeeper to rollover an automatic cash out IRA established with a participant’s prior employer-sponsored retirement plan into a subsequent eligible defined contribution employer-sponsored retirement plan. Requirements: (1) the individual is an active participant in the subsequent plan; (2) the participant was given notice and did not opt out of the transaction; and (3) the recordkeeper acknowledges fiduciary status and satisfies certain additional elements.

• • Applicable plans: 401(a), 401(k), 403(b), and governmental 457(b) plans, SEPs, and SIMPLE plans all with less than 100 employees
  • Effective date: Transactions occurring on or after the date which is twelve (12) months after the date of enactment

What’s next

Plan amendments to memorialize the law must be adopted no later than the end of the 2025 plan year for nongovernmental plans, and the end of 2027 plan year for governmental plans and collectively bargained plans. In the meantime, employers and their service provider partners should assess how the law impacts their organization and employees, including needed changes and opportunities.

This summary includes highlights from the legislation and is not intended to be an exhaustive list.