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.
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.
A 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.