10 Things Small Employers Should Know About The SECURE 2.0 Act

• Published date: 22 March 2023
• Subject Matter: Employment and HR, Retirement, Superannuation & Pensions, Employee Benefits & Compensation
• Law Firm: Stanton Law
• Author: Ms Anna Grant

The SECURE 2.0 Act was enacted as part of the Consolidated Appropriations Act for 2023. It contains 90 sections affecting the design, administration, and tax treatment of employee retirement plans, among other things. It is intended to help address the "retirement crisis" in America by making it easier for employers to establish retirement plans and for employees to save for retirement. While the law is quite sweeping, below is a summary of 10 changes that employers of small businesses should note, remembering that much more guidance is needed to implement the SECURE 2.0. In fact, the American Benefits Council sent a letter to the Department of Treasury on February 7 with the headline, "Immediate Guidance Needs Under SECURE 2.0". Five of the 10 provisions below were identified as having "Immediate Guidance Needs".

Effective Now

1. Improved credit for small employer pension plan startup costs. The three-year small business plan startup credit has been increased from 50% to 100% of administrative costs, up to an annual cap of $5,000. This applies to employers with no more than 50 employees. An additional tax credit is provided based on a percentage of employer contributions up to $1,000 per employee.

2. Optional Roth treatment of employer matching or nonelective contributions. Employers are now permitted to provide employer contributions and nonelective contributions on a Roth basis at the participant's option.

3. Roth for SEPs and SIMPLE IRAs. Effective for taxable years beginning after December 22, 2022, SEPs and SIMPLE IRAs may accept Roth contributions.

Effective for Taxable/Plan Years beginning after December 31, 2023

4. Roth tax treatment for catch-up contributions. All catch-up contributions from employees with compensation greater than $145,000 must be treated as Roth contributions.

5. Treatment of student loan payments as elective deferrals for purposes of matching contributions. Recent studies have shown that individuals with student debt tend to delay retirement savings. When an employee decides not to contribute to their retirement plan, they miss out on any employer matching contributions. Employers will be permitted to make contributions equal to the missed matching contributions, based on "qualified student loan payments". A qualified student loan repayment is broadly defined as any indebtedness incurred by the employee solely to pay for qualified higher education expenses.

6. Penalty-free withdrawals for certain emergency expenses. Plans can...