Your Questions Answered: SECURE 2.0 Act

Part of a series  |  SECURE 2.0 Act Insights

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SECURE 2.0 continues to introduce many new provisions that impact employer-sponsored retirement plans. ADP Retirement Services hosted a webcast to cover this topic and address attendees' questions and concerns.

Several new provisions from the SECURE 2.0 Act are already in effect — with more on the way. They all share a common goal: To increase retirement readiness for American workers by expanding access to employer-sponsored retirement benefits.

As with any new legislation, employers and employees have questions surrounding the changes and how they impact retirement planning. Many were answered in a previous post, and ADP Retirement Services also held a recent webcast to address additional concerns, offer insights and introduce best practices as employers navigate the legislation.

As a result, we created a more detailed Q&A to answer attendees' questions, including the following topics:

Catch-up contributions

Q. Is it the employer's responsibility to determine a new employee's prior year wages if they were not employed all year by the current employer?

A. No, employers are only required to determine whether their employees were paid over $145,000 in the prior year. New hires will be able to make pre-tax catch-up contributions even if the new employees were paid over $145,000 by a different employer in the prior year.

Long-term, part-time employees

Q. Is the LTPT 500-hour requirement an annual requirement or is it the total over a two-year period?

A. For plan years beginning on and after January 1, 2021, if your employee completes a minimum of 500 hours of service (but not more than 1000 hours of service) in each of three consecutive years, the employee meets the LTPT eligibility requirements. For plan years beginning on and after January 1, 2025, if your employee completes a minimum of 500 hours of service (but not more than 1,000 hours of service) for two consecutive years, the employee will meet the LTPT eligibility requirements.

Automatic enrollment

Q. When does the automatic enrollment provision take effect?

A. Most employers who establish new plans after December 29, 2022, will be required to automatically enroll all eligible employees into their plan (unless they opt out) beginning in 2025. Note that the automatic enrollment mandate does not apply to certain employers/plans, including employers with 10 or fewer employees, governmental plans and plans of new employers who have been in existence for fewer than three years.

Emergency Savings Account (ESA)

Q. Is an ESA only available to employees who are eligible to participate in the retirement plan or ALL employees?

A. Under SECURE 2.0, ESAs are short-term savings accounts linked to retirement plan accounts that are available only to participants who are considered non-highly compensated employees.

Required Minimum Distributions (RMD)

Q. When does an individual who is age 72 in 2023 need to take their first RMD?

A. The SECURE 2.0 Act increased the required age for starting to take RMDs to age 73 effective for distributions made after December 31, 2022, for individuals who attain age 72 after that date. For those who reach age 72 in 2023, the first RMD must be made for the 2024 tax year, no later than April 1, 2025.

Student loan matching plan

Q. What is considered a Qualified Student Loan repayment?

A. The SECURE 2.0 Act defines a Qualified Student Loan repayment (QSLP) as a payment made by an employee to repay a qualified education loan taken to pay for higher education expenses.

Employer tax credits

Q. Does the tax credit only apply to new plans?

A. No. Under the SECURE 2.0 Act, there are new and enhanced start-up tax credits that apply beginning with the employer's 2023 tax year that extend to plans during the first three years of their establishment. Under the enhanced start up tax credit, small employers with up to 50 employees may now be eligible to receive a credit covering 100% of administrative expenses (capped at $5,000 or $250 times the number of non-highly compensated employees if less) for the first three years of a new plan.

Knowledge is power

Armed with more information, you can make smarter decisions for your employees and best prepare them for the next phase.

ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor. ADPRS-20231103-5134