Retirement Plan Updates: Key Legislative Changes for Plan Sponsors

As a Plan Sponsor, staying up to date on retirement plan regulations is essential to ensuring compliance and maximizing benefits for participants and beneficiaries. Legislative changes in recent years, including provisions from the SECURE Act and the SECURE 2.0 Act, have introduced significant changes that could impact how you manage your company’s retirement plan.

Mandatory Auto-Enrollment For New Plans

New 401(k) and 403(b) plans must automatically enroll employees at a minimum contribution rate of 3%, increasing by 1% annually up to at least 10% (but no more than 15%). Businesses with fewer than 10 employees or those less than three years old are exempt.

Increased Catch-Up Contributions

Employees aged 50 or older can make additional catch-up contributions. Individuals aged 60 to 63 will see their catch-up contribution limit increased to the greater of $10,000 or 150% (indexed for inflation). However, high earners (those earning over $145,000) in certain retirement plans must make catchup contributions on a Roth basis, meaning after-tax dollars.

Emergency Savings and Withdrawals

Employers can now offer an emergency savings account linked to retirement plans, allowing non-highly compensated employees to save up to $2,500 in a Roth account. Additionally, participants can withdraw up to $1,000 annually for emergency expenses without penalties.

Long-Term Part-Time Employees (LTPTEs)

Under the SECURE Act, LTPTEs must be eligible to participate in applicable retirement plans after reaching age 21 and completing at least 500 hours of service in each of the three consecutive 12-month computation periods. The SECURE 2.0 Act reduced the consecutive 12-month computation periods to two years.

Final Thoughts

There are numerous additional changes resulting from the SECURE Act and the SECURE 2.0 Act that Plan Sponsors should familiarize themselves with. These changes present opportunities (and in some cases challenges) to enhance employee benefits while taking advantage of financial incentives. To ensure compliance and make the most of these updates, consult with your retirement plan advisor or legal counsel to tailor your plan strategy. ABI