SECURE ACT 2.0 – What Employers Need to Know

In late In late December, a $1.7T omnibus spending package was passed in Congress and subsequently signed into law by President Biden. This bill included some significant updates to the landmark 2019 SECURE Act, such that this portion of the legislation is being referred to as SECURE Act 2.0.

The legislation is far-reaching and offers several enhancements intended to strengthen American’s retirement and financial readiness.

While there are many changes that impact personal savers, I’d like to focus on one change that will have a significant impact on 401(k) plans, and the companies that sponsor retirement plans.

Automatic Enrollment

• The new legislation requires businesses creating new 401(k) and 403(b) plans beginning in 2025, to automatically enroll eligible employees, starting at a contribution rate of at least 3%, up to 10% of employee compensation.
• Contribution rates must increase by 1% each year until at least 10% is reached, but not more than 15%. Employees have the option of declining to participate or adjusting their personal savings rate.   

Why is this impactful?

Roughly 25% of working adults have no retirement savings, and fewer than 4 in 10 believe their retirement savings are on track, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2019.

• Proponents are hopeful that the provision will increase 401(k) participation rates and raise the amount workers save for retirement.

Signing up for a 401(k) is simple – filling out a form isn’t a difficult task, but research has shown that workers need a nudge. As the data have repeatedly shown, auto enrollment is indeed that nudge.

• According to a Vanguard Research study, among newly hired employees, participation rates were at 91% under auto enrollment, versus 28% under voluntary enrollment. 

The future impact of Automatic Enrollment can be significant. Employees benefit from these automated plan design options. Employers benefit by having engaged employees that are financially fit. 

If you have questions about how this plan design enhancement could affect your retirement program, please call (412)815-4721 to speak with our Retirement Plan Services team today.

See below for additional key provisions in SECURE Act 2.0 for employers: