SECURE Act 2.0: What 401(k) Managers Need to Know for 2024

Required for 2024

Long-term, Part-time Employees

As part of SECURE 1.0, there is an important provision about long-term, part-time employees and retirement plan eligibility. In short, effective January 1, 2024, 401(k) plans must allow employees who have worked 500 hours or more in the past three consecutive 12-month periods to contribute elective deferrals to the plan.  

Changes for High Earning Pre-Retirees

Employees looking to maximize their retirement savings with catch-up contributions should be aware that if they earn more than $145,000 in W-2 wages, their cacth-up contributions are now required to be Roth. Employees who earn less than $145,000 can choose either pre-tax or Roth contribution type. Note that plans need to allow for Roth contributions for this option to be available.  

These required provisions may need additional explanation. Contact us to discuss your specific plan.

Optional for 2024

While this is not a complete list of the optional provisions to consider in 2024, this short list includes several of the most anticipated. We want to focus on the provisions that may reduce your administrative hassle, provide employees relief during compromising situations, and could encourage positive savings behaviors.  

Reduce Administrative Hassle

Account Transfers for Former Employees

Retaining former employees' 401(k) accounts can be onerous for plan sponsors, particularly if the accounts are small and inactive. However, a new solution is available that helps facilitate the transfer of accounts to the ex-employees' new employers.  

Automatic portability is a transaction process that automatically allows 401(k) accounts with balances between $1,000 and $7,000 to be transferred to the new employer's retirement plan without involving the former employee. This can save plan sponsors time and resources while also ensuring that former employees' retirement savings remain safe and intact.

Fortunately, many recordkeepers and service providers can help facilitate smooth 401(k) account transfers. From locating missing plan participants to handling necessary paperwork, the right partner may help reduce costs, improve efficiency, and enhance employee satisfaction.

Safe Harbor IRA Upgraded

Previously, plan sponsors could only transfer former employees' 401(k) accounts to a Safe Harbor IRA if the balance was not more than $5,000. The revised provision increased that amount to $7,000. This may help improve plan administration by helping sponsors avoid large plan audits, additional fees, and issues caused by missing participants.

Provide Employees Support

Help Workers Access $1,000 for Emergencies

SECURE Act 2.0 offers a simple solution for employees who need to access retirement savings for personal or family emergencies. This provision allows workers to withdraw up to $1,000 from their retirement savings without incurring the typical 10% excise tax penalty.  

The withdrawal is not a loan and requires little additional paperwork or administrative burden. Employees can take advantage of this one-time distribution and optionally repay it within three years. This feature could prove particularly useful for busy HR professionals and 401(k) administrators looking to streamline processes and save time.

Payroll Deducted Emergency Savings

This "side-car" emergency account can provide employees with further security and peace of mind in the face of financial uncertainty.  

Under this provision, employers can automatically enroll their employees in a savings account that allows up to 3% of their wages to be saved for emergencies. Account contributions are made on a Roth-like basis and are capped at $2,500. Once the cap is reached, additional contributions can be directed into a Roth-defined contribution plan or stopped altogether. The accounts are also subject to annual matching contributions. Additionally, each year, the first four withdrawals from the account are not subject to any fees or charges. These emergency savings accounts are for non-highly compensated employees.

This new feature helps employers support their workers' financial well-being and become more confident and secure financially.  

Penalty-Free Withdrawals Available for Victims of Domestic Abuse

Domestic abuse survivors can withdraw up to $10,000 (or 50% of their retirement fund, whichever is lesser) without penalty. This initiative provides much-needed financial security for survivors.

Natural Disasters and Financial Response

In the unfortunate event of a natural disaster, this new measure provides relief for those dealing with it. Individuals can withdraw up to $22,000 from their retirement plan or IRAs without facing the 10% early withdrawal tax penalty. This amount can be paid back over three years, or the recipient can pay taxes on the distribution if not repaid, spread out over three tax years.  

Encourage Positive Savings Behaviors

Auto-Features and Honest Mistakes Are Now Protected

Auto-features have been proven over and over to help all workers save for retirement. In that spirit, this provision provides a grace period for correcting certain retirement plan errors. Plan sponsors now have 9 ½ months after the close of each plan year to rectify mistakes related to default enrollment or matching contributions without facing any penalty.

This is beneficial for HR executives, who often have to deal with a large number of employees and may occasionally make innocent mistakes. The extension offers them peace of mind from potential fines and allows them to focus on more important tasks rather than worrying about errors made when administrating their retirement plans.

Next Steps

As a 401(k) manager or employer, you have the opportunity to take advantage of the SECURE Act 2.0 provisions to reduce administrative hassle, encourage positive savings behaviors, and enhance financial confidence for your employees. Reach out to us today to learn more about how the new legislation can benefit your plan. Don't miss out on this chance to make a real impact on your employees' future!

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