December 13, 2022

How SECURE Act 2.0 May Impact 401(k) Plans and Audits in 2023

What is the status of SECURE Act 2.0 and what effect could it have on companies’ 401(k) Plans? Even if a company doesn’t currently have a 401(k) Plan for employees, proposed provisions in the bill could require employers to offer one. This legislation has been working through both houses of Congress over the last two years and is a follow-up bill to the original Secure Act (Setting Every Community Up for Retirement Enhancement) which was passed into law on December 19, 2019 and took effect on January 1, 2020. The highly anticipated follow up to the original bill has faced several roadblocks despite its predecessors’ bipartisan support, but hopes are high that Congress may finally be ready to pass it.  

Key Takeaways: 

  • This bill is expected to be attached to “must pass” omnibus legislation during the lame duck session of Congress 
  • Some more controversial provisions may be excluded from the bill, including provisions concerning long-term part-time workers, startup credits for employers and requirements for paper statements 
  • Several provisions of the bill could serve to attract and retain new workers, particularly younger employees  
  • Employers who previously did not offer 401(k) or equivalent plans to staff will have added incentives to add one 

SECURE Act 2.0 is planned to implement some of the items that didn’t make it into the first Secure Act, including a requirement for most employer-sponsored retirement plans to automatically enroll new employees, methods to lower retirement plan costs for small businesses, and a plan to make it easier for student loan borrowers to save, among other provisions. An outspoken advocate of the bill, American Retirement Association CEO Brian Graff, has expressed confidence that the legislation will get put together in the last month of the 117th Congressional Session, perhaps as part of a larger omnibus bill.   

How Will Proposed Provisions Affect 401(k) Plan Sponsors? 

There are already proposals that have been put forward and there is actual bipartisan support for it. It is just a matter of putting the proposals together into one bill that can pass both houses. Areas of contention that may either hold up the bill or be left out of the final legislation include: 

  1. Provisions for long-term part-time workers. The proposals include requirements that employees that are part-time workers for an extended period be required to offer participation in a company 401(k) Plan has been discussed as a provision from the start. Graff believes this will remain in the bill, but the implementation may be moved back another year until 2024. 
  1. Startup credits to employers. The proposals include a provision for a credit to employers that startup a contributory plan for their employees. The credit amounts vary from 100% to 75%.  This is an area that would have to be negotiated before the final bill is agreed. 
  1. Requiring paper statements be provided to participants. Some lawmakers have concerns about this. Graff does believe some version of the requirement will make it into the final legislation, but it could go through significant change from the current version. 

If the provisions are worked out and a final bill is passed, what actions will be required right away by Plan Sponsors? First, you’ll want to review the bill or discuss it with your service provider to make sure you understand all the provisions and how they will impact your Plan.  

Where SECURE Act 2.0 Will Have the Most Impact on 401(k) Planning 

Where companies will likely see the most potential impact is the provision concerning matching contributions for employees making student loan payments. The bill is expected to allow employers to match student loan payments as if they were employee contributions to the 401(k) Plan. This is an attractive feature to younger workers especially and is viewed as an employee retention feature.  

The provision requiring part-time workers to be eligible and included in all Plans moving forward will also certainly cause an impact. This is a significant change to the Plan requirements, especially for those companies that hire numerous part-time or seasonal workers. 

The recordkeeping/administration needed to implement these provisions are expected to be cumbersome and will require early enactment. Understanding the requirements as quickly as possible to ensure you are prepared to gather the data needed is important if this is an area that will impact your Plan. 

What Companies Currently Without 401(k) Plans Need to Know 

Lastly, for those companies that do not yet have a 401(k) Plan, this bill will more than likely impact them as it requires some companies to implement a Plan and offers credits to others to set one up, especially if they are very small. 401(k) Plans are a key recruitment tool and in this age of staff shortages, companies can use every advantage to attract and retain as many staff as possible.  

It will be important to reach out to an investment advisor or company that provides Plan administration to ensure you understand all the options available, costs of offering a Plan and ways to maximize the Plan offering to your employees without incurring significant costs. 

As we move through the last few weeks of 2022, we’ll keep our eyes open for the resolution to this story. We may have a new set of Plan requirements early in 2023 based upon passage of the new proposals. 

For more information on how we can help, request a free consultation below or contact Kim Moore at (260) 918-8824 to discuss your unique 401(k) audit needs. 

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