4 changes that SECURE 2.0 already made to your retirement plans

Employers have been trying to unpack the provisions of SECURE 2.0 since it was signed at the end of 2022. The law is nothing short of a detailed overhaul of employer retirement savings plans.

Speaking at SHRM23, Jeanne J. Sutton of Strategic Retirement Partners (aka “The 401k Lady”) said the new rules came out before employers and the industry were ready. While we’re still waiting for more detailed guidance, there are some provisions employers can (and must) implement immediately.

There are 92 provisions in the law, but Sutton focused on just the ones that are effective now. Here are 4 important changes that SECURE 2.0 brings to your retirement plans in 2023.

Hardships

More allowances

SECURE 2.0 expands the hardship provisions, allowing employees to take distributions from their 401ks without the 10% penalty.

The ones effective this year:

• A $5k hardship distribution for the qualified birth or adoption of a child with a 3-year payback.
• A $22k hardship distribution for a federally declared disaster area.
• Any employee that is declared terminally ill.

Self-certifications

Employees are now allowed to self-certify their hardships with no documentation necessary. Sutton says that if you’re currently certifying employee hardships yourself, stop now. Move the certification process to your retirement provider or utilize self-certification.

Roth Employer Match

Why Roth?

Sutton advises her clients to encourage employees to use Roth 401ks when possible. Unlike traditional 401ks, Roths are not tax-deferred. With Roth accounts, employees pay taxes on their retirement contributions in their regular paycheck.

Sutton’s reasoning … tax math. With pre-tax deferral accounts, a person pays taxes on the entire balance of their account in retirement. “If you pay the tax today, your taxable retirement is zero,” she said.

How to implement a Roth?

Sutton said employers would establish a new payroll code “ER-Roth” and add the contribution as a cash-less taxable item to the paycheck. One caveat is employer matching contributions, which can only be taxed when they’re 100% vested. Roth401ks should not impact the employer’s taxes, according to Sutton.

Small financial incentives

SECURE 2.0 makes it legal for employers to provide a small financial incentive to encourage enrollment among employees.

Reducing notices

The law also allows employers to reduce the number of notices they are required to provide. It used to be that all employees eligible for the company’s retirement plan would have to receive notices; now that requirement is reduced to only enrolled employees. Less mail.

More on Sutton

During her sessions at SHRM23, Sutton also spoke on the many SECURE 2.0 provisions that are rolling out in 2024, 2025, and beyond, as well as how the industry expects technical improvements to catch up with the legislation, making implementation easier in future years. You can follow Jeanne on Facebook, Instagram, LinkedIn, or X (formerly Twitter) under #401klady.