Debuting in 2019, the SECURE Act has played a pivotal role in helping US employees better prepare for retirement and combat the yawning American retirement security crisis. In fact, according to the Federal Reserve’s recent Economic Well-Being of U.S. Households in 2022 report, a majority of non-retired employees now have at least some retirement savings. That said, while the number of employees with retirement savings has ticked up, a vast minority of non-retired employees, 31%, say that their retirement savings plans are “on track” according to the same report – a concerning decrease from 40% in 2021.
This shortfall has not gone unnoticed and spurred on the passage of SECURE Act 2.0 in late 2022 – an even more ambitious piece of legislation that introduced nearly 100 new provisions aimed at further helping American employees achieve better outcomes in retirement. And while this legislation has been welcomed by employees as well as business owners that will now be able to access additional tax saving benefits, alongside SECURE Act 2.0 has come a web of new compliance guidelines and regulatory measures that employers need to contend with and have buttoned up in time for audits throughout 2024 and beyond.
With that in mind, here are several key items that need to be kept in mind for businesses and their benefits teams as they look to meet SECURE Act 2.0 compliance demands.
Planning for SECURE Act 2.0’s multi-year rollout
The SECURE Act 2.0 is a far-reaching piece of legislation that naturally has significant knock-on effects for employers. Adding to its complexity is that unlike similar employee benefit legislation which historically has had all provisions enacted all at once, the SECURE Act 2.0 will see its provisions rolled out over the course of several years. This means that businesses need to continuously have a finger on the pulse of their benefit plan compliance and have a clear multi-step plan of not only what areas they need to be compliant within a given year, but how they are tracking in terms of future compliance expectations year-on-year and what still needs to be done to get there.
Key provisions for 2024
Although some SECURE Act 2.0 provisions have already snapped into place in 2023, 2024 is a year when a significant chunk of compliance “heavy lifting” will need to be done with several high-priority provisions needing to be met. Some of these pressing provisions of note include:
- Changes in plan audit requirements
Arguably the most notable compliance tweak for 2024 stemming from SECURE Act 2.0 involves which plans require an audit and which do not. For example, historically, businesses were required to have retirement plan audits if they crossed the 100-employee threshold. However, with the passage of SECURE Act 2.0, businesses that have 100 retirement plan balances will now require an audit. This switch from all eligible participants to participants with account balances may reduce the number of plans needing an audit – if the number of participants with balances is lower than the eligible participant count – so benefits teams need to make sure they have up-to-date figures on which plans meet this new threshold. - Changes in accounting for long-term part-time employees
Benefits enrollment for long-term part-time employees has been a long evolving question within the regulatory community with the SECURE Act of 2019 finally providing some firmer guidelines about the eligibility for this cohort for their employer’s retirement plans: beginning in 2024, part-time employees who have worked over 500 hours for three consecutive years must now be eligible to participate in an employer’s retirement plan. However, this is once again set to change as a result of the Secure Act 2.0, with employees that have worked over 500 hours for only two consective years now being eligible to contribute to their employer’s retirement plan beginning in 2025. Given many businesses are still coming to terms with the original provision that snapped into effect in 2024, updating long-term part time employee eligibility again to meet 2025 parameters will likely be a potential area of oversight for benefits teams, and thus will require additional vigilance. - Auto-enrollment for new plans beginning in 2025
Another key provision of SECURE Act 2.0 is that any new benefit plans with an effective date of December 30, 2022, or later, must be updated to facilitate employee auto-enrollment by January 1, 2025. Furthermore, automatic contributions must be set between 3% and 10% of an enrollee’s compensation and must increase automatically by 1% annually until at least the 10% threshold is hit – although automatic contributions can be set to max out at 15%. Not all organizations need to meet this mandate – for example, businesses with less than 10 employees or those that are less than three years old are exempt – however, because these exemptions are quite narrow, business leaders and benefits teams need to be incredibly mindful of where their organization sits in terms of employee count and business maturity in relation to benefit plan eligibility in the years ahead.
Closing thoughts
SECURE Act 2.0 is one of the most ambitious and complex pieces of employee benefit legislation in history, meaning it presents a new level of challenges that benefits teams need to confront in terms of compliance. In addition, as the push for greater participation and access to retirement plans among the
public and legislators alike, SECURE Act 2.0 is likely to be followed by even more rigorous legislation in the years to come. However, by keeping these key provisions in mind, businesses will stand a better chance of not only remaining compliant in the year ahead but will lay the foundation for better preparedness when future legislation comes down the pike as well.
