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The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law at the end of 2019, made employee retirement savings easier and more accessible. It was designed to address the growing retirement savings crisis showing dismal statistics, including an estimated 38 million households have no retirement account assets. While progress has certainly been made, Congress has continued concern that more changes are in order. This has led to the introduction of the SECURE Act 2.0 (Act 2.0), which builds upon the changes made in the first version and extends into new areas. This includes expanded part-time worker eligibility, mandatory automatic enrollment, and how participant overpayments can be resolved. While Congress is still considering it, many of the changes will likely make it into the final version of the bill. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
- Expanded Part-Time Worker Eligibility – The original SECURE Act (Act 1.0) required plan sponsors to offer long-term part-time employees that work at least 500 hours a year for three consecutive years to participate in the plan. The Act 2.0 would reduce the 3-year requirement to 2 years, making it easier for part-time employees to become eligible to participate.
- RMD Age Requirement – Similar to the age increase outlined in the Act 1.0, Act 2.0 dictates an increase to the age when required minimum distributions (RMD) need to be taken – starting in 2022, the age would be increased to 73, in 2029, an increase to 74 and finally in 2032, it would increase to 75.
- Mandatory Automatic Enrollment – To drive increased participation in employer-sponsored retirement plans, the Act 2.0 would require any new 401(k), 403(B), and SIMPLE plans established after 2021 to implement automatic enrollment. Also, under Act 2.0, participant compensation deferrals must be automatically set to a 3% elective deferral with annual increases of 1% phasing out at 10% of compensation. It is important to note that this does not apply to existing plans.
- Student Loan Repayments – To encourage younger workers to participate and counteract the argument that students are not saving because they are repaying their student loans, Act 2.0 would allow employers to match student loan payments with a contribution to the employee’s retirement account.
- Central Participant Data Repository – A common issue faced by many plan sponsors is the inability to locate retired participants or their beneficiaries eligible to receive benefits due to stale contact information. This topic continues to be an area of interest for the Department of Labor (DOL) and is reflected in its audits. The Act 2.0 would help resolve the issue by establishing a proposed central data repository for information on lost participants. Unfortunately, specific details on the system have yet to be outlined, and it is likely to be several years away. The creation of such a tool would make locating lost participants easier for plan sponsors.
- Participant Overpayments – Another challenge arises when an overpayment to a participant occurs. The plan must then attempt to recover the overpayment, which is often a difficult task. Act 2.0 would allow plans to decide not to recoup overpayments, concurrently protecting retirees from having to make an unexpected repayment. In this case, the plan could elect to simply write off the overpayment and correct the issue moving forward.
- Resolving Plan Errors – Under Act 2.0, additional time would be available to correct plan errors. Under the changes, plan sponsors would have nine and a half (9.5) months after the end of the plan year in which errors occurred to correct the issue without penalties. Concurrently, there would also be an expansion of error reporting available through the Employee Plans Compliance Resolution System (EPCRS).
The proposed changes will make it easier for Los Angeles and Dallas area plan sponsors and participants to address management issues and drive retirement plan savings. While the SECURE Act 2.0 is still being considered by Congress, it does provide important insights on what changes may be coming in the future. If you have questions about the information outlined above or need assistance with a plan audit, JLK Rosenberger can help. For additional information, call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.