By now, many of you have heard of the SECURE 2.0 Act, which President Biden signed into law in December 2022 as an extension of the 2019 SECURE Act. The massive, sweeping piece of legislation aims to improve the ability of Americans to save for retirement. It contains 92 provisions intended to promote retirement savings and encourage small businesses to set up employer-sponsored retirement plans.

We wrote about SECURE 2.0 over a year ago [bit.ly/secure-TVB] and highlighted what was coming. Many of its provisions were delayed until 2024, 2025 and even later.

Recently, we met with a top 401(k) recordkeeper (a name you would recognize) who told us the company expected to pay for over 77,000 hours of computer reprogramming in 2024 just to prepare for the provisions that go into effect in 2025 and beyond.

Given the act’s enormity and complexity, we learned that our mission was not to brief clients on every provision. Instead, we decided to keep our clients on a “need to know” or “need to do” footing. That meant we would advise them if they needed to do something and whether a provision created a planning opportunity or tax advantage for them.

Here is our Top 10 list of takeaways.

1. Tax Credits for New Plans

For many businesses with fewer than 50 workers, expanded tax credits lower the cost of entry for employer-sponsored retirement plans. A plan might qualify for some or all of these:

• Start-up expense credit: $250 annually per non-highly compensated employee (up to $5,000 for three years).
• Employer contributions: A tax credit of up to $1,000 per employee if the person earns less than $100,000 a year. It phases out over five years (100%, 100%, 75%, 50%, 25%). Employers with 50 to 100 workers receive a reduced tax credit.
• Automatic employee enrollment: $500 credit for three years.

For example, if a single-owner veterinary practice had 15 employees each making less than $100,000 a year, here’s what the business could expect:

• Start-up credit: $3,750 annually for three years.
• Employer contributions credit: $15,000 in years 1 and 2, $11,250 in Year 3, $7,500 in Year 4, and $3,750 in Year 5.
• Automatic employee enrollment credit: $500 annually for three years.

The total Year 1 credit of $19,250 would almost offset the first-year costs, including plan establishment fees of $5,250 and contributions to 15 employees (approximately $23,250).

Check with your accountant or third-party administrator to confirm your practice’s eligibility.

2. Upgrade From SIMPLE IRA

You can switch to a Safe Harbor 401(k) plan anytime starting in 2024 without a waiting period. Improving your practice’s employee retirement plan got easier.

3. Automatic Enrollment and Rate Increases

Starting on Jan. 1, 2025, all new 401(k) and 403(b) plans adopted after Dec. 29, 2022, must automatically enroll participants at a salary-deferral rate of 3% to 10% and increase it by 1% annually to at least 10% but not more than 15%. Exceptions are made for businesses with fewer than 10 employees, companies under 3 years old, and churches and governments.

One wonderful side effect is substantially more payroll-integration options. Integration makes automatic enrollment easier for new and existing plans since the payroll and 401(k) systems “talk” to each other, reducing administrative burdens.

4. Qualified Automatic Contribution Arrangement

Auto-enrollment creates demand for an often-overlooked plan design option: the Qualified Automatic Contribution Arrangement Safe Harbor formula. While all Safe Harbor formulas allow plans to pass compliance testing (which helps business owners and highly compensated employees contribute the maximum amount), employer contributions are 100% vested immediately. Enter the Qualified Automatic Contribution Arrangement match as an alternative. This formula allows for a two-year vesting of employer contributions, making it an attractive option for veterinary practices with high turnover in lower-paid positions.

5. Part-Timer Eligibility

The first SECURE Act allowed long-term part-time employees (500-plus hours annually for three years) to contribute their own money to a 401(k) plan in 2024. Starting in 2025, the required service falls to two years. Consult with your third-party administrator or adviser if you think long-term part-time employees qualify or will soon.

6. Employer Roth Contributions

Workers may choose to receive their employer contributions as Roth. Payroll companies and recordkeepers are working to accommodate the option. As a practical matter, offering an in-plan Roth conversion feature is far easier. Thus, employees may elect to reclassify — or “convert” — their employer contributions. They receive a separate 1099 form to pay any taxes due on the conversion. Consult your adviser to learn more.

7. Minimum Distributions

A participant’s age for required minimum distributions increased to 73 and will rise to 75 in 2033. That change is good news because it allows for tax-deferred growth over an extended period.

8. Simplified Hardship Declarations

For retirement plans with hardship distribution options, employees can withdraw money for these seven reasons:

• Medical expenses
• Home purchase
• College expenses
• Eviction or foreclosure avoidance
• Funeral expenses
• Federal disaster
• Repairs after a home casualty loss

In the past, plan participants had to show proof of qualification. Now, they can self-certify.

9. Student Loan Payments

Employers with 401(k) plans can match qualifying student loan payments starting this year. However, seemingly few, if any, payroll companies and recordkeepers can accommodate the option. We expect more of them to offer it after they sort out SECURE 2.0’s mandatory requirements.

10. Fewer Notices to Non-Participants

Workers who decline to enroll in a 401(k) no longer need to receive many employer-disseminated plan notices, such as changes to investment options. After their initial notice of eligibility, they will be reminded about it annually.

Everyone knows about the importance of saving for retirement. The provisions in the SECURE 2.0 Act make 401(k) plans more accessible and affordable through tax credits. In addition, the rules around automatic enrollment and automatic rate increases should improve how employees think about retirement savings.

If you are considering a new 401(k) plan or weighing changes to an existing plan, we recommend working with a fiduciary plan adviser to guide you through the process. The expert can design a 401(k) plan that best meets employer and participant needs while helping businesses stay compliant in a changing regulatory and legal landscape.