The retirement savings gap has become a significant problem for American workers. The financial hardships of the pandemic, coupled with rising inflation, have put people behind on their contributions, which has resulted in putting off retirement—nearly one-quarter of workers say they are planning on retiring later than expected. Additionally, over half of Americans have taken early withdrawals from their 401(k) accounts to help make ends meet.
The government realizes this is a problem for millions of Americans, which is why it has stepped in to help with the SECURE 2.0 Act. Here's what it means for you and your financial wellness benefits.
What is the Secure 2.0 Act?
The Secure 2.0 Act addresses additional issues related to retirement savings that were not part of the original SECURE Act. The act aims to provide more flexibility and accessibility to help individuals plan for a more secure future. The act was signed into law in late 2022. It featured several new provisions related to retirement, such as higher catch-up contributions, qualified charitable distributions (QCDs), reduced withdrawal penalties for failing to take a required minimum contribution (RMD), and more.
However, for folks who are still several years off from retirement, the act offers several other provisions that benefit their financial wellness.
How will this impact my financial wellness benefits?
Automatic enrollment in your employer's 401(k) plan
One of the main benefits of the SECURE 2.0 act is automatic enrollment in your employer's 401(k) or 403 (b) plan at 3 percent. Additionally, this provision permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee's low-balance retirement accounts to a new plan when they change jobs. These actions eliminate the hurdles employees face when opening a retirement account or moving their balance, making it much easier to start saving for retirement.
Emergency saving account options
Another provision of this act is adding an emergency savings account for defined contribution retirement plans. This Roth account is eligible to accept employee contributions starting in 2024. Employees would be limited to a contribution amount of $2,500 annually (or lower, as set by the employer), and the first four withdrawals in a year would be tax- and penalty-free. In addition, depending on plan rules, contributions may be eligible for an employer match. With this benefit, employees can be more inclined to build their emergency savings to use in the event of an unexpected or short-term expense.
Employer-matched contributions to pay down student debt
A unique feature of this act is the ability for employers to "match" employee student loan payments with matching payments to a retirement account. Though this won't go into effect until 2024, it provides an excellent incentive for employees to save for retirement while simultaneously paying down their loans.
Rollover 529 plans to a Roth IRA
After 15 years, 529 plan holders can roll their assets over to a Roth IRA. Once rolled over, beneficiaries are still subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. That said, rollovers cannot exceed the aggregate before the five years ending on the distribution date. The rollover itself is also treated as a contribution towards the annual Roth IRA contribution limit.
Flexible benefits for financial wellness
Don't leave your employee hanging, especially when saving for retirement. Employees can use their unused PTO to save for retirement, pay down student loans, and save for emergencies with flexible benefits. Learn more about the PTO Exchange platform by requesting a demo today.
Learn more about how you keep your employees financially healthy in our new guide.
Published on Feb 08, 2023 by Rob Whalen
