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With the start of 2024 comes a wave of substantial changes to the retirement landscape caused by the rollout of version 2.0 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was passed by Congress in 2022. The legislation contains provisions aimed at increasing retirement savings and preparedness for millions of U.S. workers.

Expanding Access

SECURE 2.0 includes over 90 provisions that serve to make 401(k) plans more widely available, help ease administrative burdens for employers, and tackle financial obstacles that impact retirement contributions. Currently, 68% of private sector employees have access to a workplace retirement account, according to 2022 data from the Bureau of Labor Statistics. However, almost half do not contribute. Additionally, research shows that 80% of U.S. households are not properly prepared for retirement.

The provisions within SECURE 2.0 present tools for both employers and employees to bridge these gaps. Experts advise plan sponsors to collaborate with partners to best implement the changes. Employers previously concerned about costs will find that SECURE 2.0 helps mitigate those issues regarding workplace retirement offerings.

Student Loan Relief

One notable change taking effect this year will allow employers to match a percentage of student loan payments and direct those funds into a retirement account. This applies to an employee’s own student debt or loans belonging to a spouse or dependent. Employers must coordinate with their plan administrator to facilitate this new student loan matching capability.

Data shows that 67% of student borrowers say their loans prevent them from saving for retirement. By enabling both student debt payments and retirement savings simultaneously, employers can better position workers to build their nest egg while handling education expenses.

Emergency Savings

In addition to longer-term retirement needs, many households struggle to cover unexpected expenses. Over a third of individuals do not have $400 available to handle surprise expenses, according to the Federal Reserve. Under SECURE 2.0, employers now have the option to automatically enroll staff into workplace emergency savings accounts. Employees can allocate up to 3% of their pay into these funds, accruing up to $2,500 before additional money flows into their retirement plan.

Experts state that households without adequate emergency cash reserves often take on unsustainable debt levels that jeopardize their overall financial health and retirement preparedness. Automatically funneling a portion of each paycheck into an accessible emergency account can help employees avoid this detrimental cycle while still contributing toward the future.

Penalty-Free Hardship Withdrawals

For circumstances that necessitate tapping retirement funds early, SECURE 2.0 introduces more flexibility. While early withdrawals previously incurred a 10% tax penalty, individuals can now access $1,000 annually without fees. For victims of domestic abuse, up to $10,000 or 50% of an account balance can be accessed penalty-free.

Streamlined Start-Up Retirement Plans

A key barrier for small companies offering retirement benefits is cost and administrative complications. Under 30% of businesses with less than 10 employees currently provide retirement plans. SECURE 2.0 introduces “starter” 401(k) and 403(b) plans to simplify this process.

Workers are auto-enrolled in these starter plans, allowing contributions up to $6,000 annually compared to the 2024 traditional 401(k) or 403(b) employer contribution limit of $23,000. Employers cannot match any funds within these streamlined offerings. Retirement experts state this presents an easily adoptable option for smaller firms to provide workplace retirement savings options.

For more employee benefits resources and industry insights, contact INSURICA today.

Copyright © 2024 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. 

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