The foundation laid by the original Setting Every Community Up for Retirement Enhancement (SECURE) Act bolstered retirement security for Americans by adapting to the changing landscape of retirement savings. An evolution of that legislation, SECURE 2.0, was passed on December 29, 2022 and it aims to further improve and expand retirement savings options while addressing the challenges posed by an evolving workforce. Below are a few of those provisions.
Expanding Access to Retirement Savings
One of the key highlights of the SECURE 2.0 Act is its emphasis on expanding access to retirement savings plans such as multiple employer plans (MEPs). Many Americans lack access to traditional employer-sponsored retirement plans, especially those working in the gig economy and part-time jobs. The Act seeks to make it easier for employers to join MEPs, plans that enable smaller businesses to pool resources and offer more cost-effective retirement plans to employees, in turn increasing coverage and participation.
The Act also aims to increase the auto-enrollment cap, requiring employers to enroll employees in retirement plans at a higher default contribution rate. There are some exceptions to this, however, as well as age limits, but this enhancement is designed to encourage higher savings rates among employees who might not otherwise take the initiative to participate.
Lifetime Income Options
The SECURE 2.0 Act addresses the growing concern of outliving retirement savings by promoting the inclusion of lifetime income options. It encourages the use of annuities and other similar instruments, providing retirees with a predictable stream of income that lasts throughout their lives. Incorporating these options into retirement plans will help participants mitigate the risk of running out of funds during their retirement years.
Raising the Age
The original SECURE Act raised the age for required minimum distributions (RMDs) from 70½ to 72, acknowledging the data trends that Americans are working and living longer. The SECURE 2.0 Act goes a step further to raise the RMD age to 73 for 2023 and will increase the RMD age to 75 in 2033. This change recognizes the increasing longevity of individuals and offers them more flexibility in managing their retirement accounts without being strained to withdraw funds prematurely.
Addressing Student Debt
A notable addition in the SECURE 2.0 Act is the provision that allows employers to make matching contributions to retirement accounts based on an employee’s student loan payments, an innovative feature that acknowledges the financial burden student loan debt places on many young professionals. This is an unique way to incentivize retirement savings while managing employee debt obligations.
The SECURE 2.0 Act represents a significant progressive step in enhancing retirement security. By expanding access to retirement plans, promoting lifetime income options, and addressing contemporary challenges such as student loan debt, this legislation seeks to create a more comprehensive and adaptable retirement strategies to improve the financial well-being of Americans.
How We Can Help
Direct Advisors, a division of HUB Retirement and Private Wealth, is based out of the Albany, New York area. We have evolved over the past 22 years from a third-party administrator (TPA) to an independent fee-based fiduciary. Direct Advisors provides prevailing wage fringe benefit administration to the construction industry, specializing in bona fide benefit plan services to merit shop (non-union) companies subject to the Davis-Bacon Act or state prevailing wage regulations and retirement plans. Our clients are located throughout the United States.