SECURE 2.0: Retirement Plans | Morgan Stanley at Work

Capitol Hill plays a critical role in shaping the corporate landscape, but even to the trained observer it can be difficult to discern how new changes in retirement legislation may affect your business. How can you deliver more value to your employees through your benefits offerings when the rules of the road continue to shift?

In the case of the SECURE 2.0 Act of 2022, also known as SECURE 2.0, there are a few provisions that directly affect workplace benefits—and the companies that rely on these critical tools for motivating employee recruitment, productivity, and retention. Here’s what you need to know.

What is SECURE 2.0?

These changes in legislation were developed to combat the ever-growing American retirement saving gap. The initial bill passed through the House in a near-unanimous bipartisan vote, demonstrating that Capitol Hill recognizes the need to prevent a retirement crisis, and the full bill passed through the Senate on Dec. 19, 2022, and was signed into law on Dec. 29, 2022.

The legislation includes changes that increase uniformity across employee segments and can help you leverage your workplace benefits to accelerate your employees’ journey on the road to financial well-being.

The bill includes requirements for newly established, employer-sponsored 401(k) and 403(b) plans to enroll their workers automatically and makes it easier for student-loan borrowers to save and for older workers to make catch-up contributions. It will also lower costs for certain employers starting a retirement plan by modifying the existing tax credit available to smaller businesses that start a new plan, among other changes.

There are many provisions in the bill, but here are a few key standouts with significant impact to employers and employee retirement planning:

Effective now:

• Establishment of a new “Starter K,” which will allow employers that do not currently sponsor a retirement plan to offer a “starter 401(k) deferral-only arrangement” plan (or a safe harbor 403(b) plan). Went into effect 2025.

• Increase in tax credit for small employers implementing a new 401(k) plan for the first three years from 50% to 100%, capped at $5,000. Went into effect after date of enactment in 2022.

• Creating an additional new tax credit to encourage eligible small employers to make direct contributions to their new plan for their employees, offsetting up to $1,000 of these employer contributions for each participating employee. Such credit is available for the first five years of the plan but is not available to new defined benefit plans. Went into effect after date of enactment in 2022.

• Expanding automatic enrollment in retirement plans by requiring new 401(k) and 403(b) plans to automatically enroll participants in the plans upon becoming eligible, with the ability for employees to opt out of coverage. Such new plans are also required to automatically increase (or escalate) such contribution amounts by 1% of compensation each year with a cap at 15% of the employee’s compensation (although plans are permitted to cease the annual automatic escalation at 10%). Exemptions from these requirements include small businesses with 10 or fewer employees, new businesses that have been in business for less than 3 years, church plans and governmental plans. Effective for plan years beginning after December 31, 2024. Went into effect 2025.

• Small immediate financial incentives for contributing to a plan permits the provision of de minimis financial incentives, such as gift cards, to encourage participation and may be provided to participants for contributing to a 401(k) or 403(b) plan, provided plan assets are not utilized to pay for such incentives. Provides an exemption to the contingent benefit rule and relief from the prohibited transaction rules under both the Code and ERISA, so long as the de minimis incentive does not exceed $250 in value Effective for plan years beginning after the date of enactment. Went into effect after enactment in 2022.

• Allows eligible employee student loan repayments to be treated as employee deferral contributions for purposes of the employer making matching contributions for SIMPLE IRAs, 401(k), 403(b) and governmental 457(b) plans. Went into effect 2024.

• Increased the age for required beginning date of required minimum distributions (RMDs) from retirement plans from age 72 to age 73 in 2023, which will increase to age 75 in 2033 (“RMD Age”).

• One-time and penalty-free emergency withdrawal of up to $1,000 from a retirement account for unforeseeable or immediate financial needs relating to personal or family emergency expenses within a three-year period. Went into effect 2024.

• Higher catch-up contribution limits for individuals ages 60-63 for most retirement plans to the greater of $10,000 per year, or 150% of the regular catch-up contribution amount in 2024. Went into effect 2025.

• Broadening pooled employer plan or open multiple employer plans to allow 403(b) plans to participate in, and be operated as, multiple employer plans and pooled employer plans. Went into effect after date of enactment in 2022.

• Established the Retirement Savings Lost and Found Database on December 29, 2024, that allows a participant or beneficiary to search for contact information for plan administrators of plans in which the participant or beneficiary may have a benefit.

Upcoming provision:

• Repeal and replacement of existing Saver's Matching Contribution allows lower-income retirement savings to receive a refundable, direct government-funded matching contribution to their individual retirement account (IRA) or retirement plan in an amount up to 50% of their contributions, up to $2,000 for tax years beginning after Dec. 31, 2026.