The SECURE Act 2.0 of 2022 introduces several significant changes aimed at enhancing retirement savings for American workers.
Breaking Down Section 101
One of the key provisions, Section 101, focuses on expanding automatic enrollment in retirement plans. Here’s what plan sponsors need to know:
- Automatic Enrollment Mandate: Section 101 mandates that new 401(k) and 403(b) plans must include an automatic enrollment feature. This means that employees will be automatically enrolled in the retirement plan at a default contribution rate unless they opt-out. The goal is to increase participation rates and help more employees save for retirement.
- Default Contribution Rates: The default contribution rate for automatic enrollment must start at a minimum of 3% of an employee’s salary and can escalate annually by 1% until it reaches at least 10%, but not more than 15%. This gradual increase encourages employees to save more over time without feeling an immediate financial burden.
- Applicability and Exemptions: The automatic enrollment requirement applies to new plans established after December 31, 2024. However, there are exemptions for small businesses with 10 or fewer employees, new businesses (those in existence for less than three years), and church and governmental plans.
- Employee Notification: Plan sponsors must provide clear and timely notifications to employees about the automatic enrollment feature, including how they can opt out or change their contribution rates. Effective communication is crucial to ensure employees understand their options and the benefits of participating in the retirement plan.
- Administrative Considerations: Implementing automatic enrollment requires updates to payroll systems and plan administration processes. Plan sponsors should work closely with their payroll providers and plan administrators to ensure a smooth transition and compliance with the new requirements.
- Potential Benefits: Automatic enrollment has been shown to significantly increase participation rates in retirement plans. By making saving the default option, employees are more likely to start saving earlier and accumulate more substantial retirement savings over time.
Key Takeaways
Section 101 of the SECURE Act 2.0 of 2022 represents a proactive step towards improving retirement security for American workers. Plan sponsors should prepare for these changes by updating their plan documents, communicating effectively with employees, and ensuring their administrative systems are ready to handle automatic enrollment. By doing so, they can help their employees build a more secure financial future.
Author: Matthew Keadle | [email protected]
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For more information about this topic, contact a member of Withum’s Employee Benefit Plan Services Team.
