The new year is ushering in some sweeping changes to employer-sponsored retirement plans that may have flown under the radar for many businesses. Which is why trusted wealth management advisors Principal Robert Elzholz, CFP®, CRPC®, AIF®, AAMS®, and Senior Financial Planning Manager Christine Papelian CFP®, CWS®, CDFA®, EA are urging companies to take note of certain options that may have far-reaching impacts.
Latest Updates to SECURE Act 2.0 Affect Three Key Programs
The new $500 increase to the maximum employee contribution limit for defined contribution plans is a deceptively modest adjustment that may have obscured some of the more significant changes taking effect in 2024. Updates to three significant programs within the Secure Act 2.0 should actually give retirement plan sponsors a lot to think about when it comes to choosing whether to opt in, or even how to implement certain mandatory requirements.
1. Emergency Savings Act (ESA)
Removing stressors from employees is a reliable way to create goodwill and develop a more focused workforce. The Emergency Savings Act is an optional program that allows participants to tap into earmarked retirement savings if an emergency occurs without incurring heavy fees or penalties.
With personal savings rates hovering near just 4%, ESA participants will no longer have to choose between creating an emergency fund and investing in their retirement.
For plan sponsors that choose to offer the program to their employees, administering the program will involve close collaboration between recordkeepers and TPAs (third party administrators) to ensure compliance with the following provisions:
- A secure employee self-certification method must be developed
- If auto-enrollment is used, it must not exceed 3%
- Only non-highly-compensated employees are eligible to participate
- The monies must be invested in a principal-protected asset to ensure its liquidity
- The ESA must be matched at the same rate as other deferrals
- ESA contributions are included in the ADP test
Importantly, the processes and systems used must ensure that no further contributions are allocated to the ESA once the $2,500 limit is met and that the funds are appropriately taxed and recorded. Future guidance for reporting requirements is expected from the Department of Labor.
Watch On Demand & Download Presentation Slides – SECURE 2.0 for Businesses: Rethinking Sponsored Retirement Plans in 2024
2. Employer Matching of Student Loan Payments
With $1.7 trillion in student loan debt, many Americans have deferred saving for retirement due to the significant burden that repaying student loans places on their budgets. In 2024, employers have an opportunity to lift that burden from their workers by matching employee student loan payments with retirement plan contributions.
In a tight job market, offering this benefit will likely sway candidates and help fill your most critical positions.
As with the Emergency Savings plan, employers must match deposits at the same rate as other deferrals. The amount of the loan payments cannot exceed the elective deferral limits and matching may be done at a different frequency than other contributions. Employers should take time to develop a process and establish a deadline for submitting loan payment records that is no earlier than three months after the close of the plan year.
3. Long-Term, Part-Time Employee Eligibility (LTPT)
The LTPT is the only mandatory program among the three, requiring retirement plan sponsors to offer long-term, part-time employees the chance to participate. The 2024 update to the plan also reduces the employment criteria from three consecutive years to just two. While this may appear to be a simple change, the method used to obtain the 500-hours-per-year requirement could vary from company to company depending on the industry, seasonality, and other factors.
Plan sponsors should have Human Resources connect with their TPA or ERISA advisor to make sure timekeeping is consistent and accurate throughout the company so that eligible—and ineligible—employees are easily identified. Clearly communicating the calculation method of the 500-hour requirement—with examples—will be important to avoid conflicts or misunderstandings about eligibility.
Are you a plan sponsor? Your next steps might require trusted guidance.
REDW’s trusted advisors are here to make it easy to make the most of updates in the SECURE Act. From analyzing your business needs to creating custom solutions based on your industry, circumstances and objectives. Our advisors are ready to help plan sponsors enhance retirement programs, stay up-to-date on fast-moving guidance, and work to ensure their retirement programs not only are compliant, but meet the needs of the workforce and company.
