SECURE 2.0 Act of 2022 Summary and Guidance
SECURE Act 2.0 passed, and this law adds over 90 new provisions to help Americans save through employer-sponsored plans. ADP is here to help you learn about the ins and outs of SECURE 2.0 and how businesses can take advantage of increased tax incentives.
SECURE Act 2.0 summary
From expanding coverage to simplifying plan rules, SECURE 2.0 aims to make it more attractive for employers to offer retirement plans and improve retirement outcomes for employees. Here are just a few key provisions employers need to understand about the new law.
Here are just a few key provisions employers need to understand about the new law.
Automatic enrollment requirement
Most companies will now be required to automatically enroll eligible employees into their retirement plan, helping more Americans reach retirement readiness.
Employers who start new retirement plans will be required to automatically enroll employees at a rate of at least 3% but not more than 10%, beginning in 2025. New companies in business for less than three years and businesses with 10 or fewer workers are excluded from this requirement.
Early withdrawal
Taking money out of a retirement account before age 59½ generally triggers a 10% early distribution penalty in addition to income taxes. SECURE 2.0 adds several new exceptions to the penalty so employees can access retirement accounts in limited situations. Examples include a once-per-year emergency expense withdrawal of up to $1,000 with the option to repay within three years, penalty-free withdrawals for federally declared disasters of up to $22,000 per disaster with income spread over three years, distributions for victims of domestic abuse up to the lesser of $10,000 or 50% of the vested account, and an exception for terminal illness. Plans may also offer new emergency savings features that allow penalty-free access to a small distribution up to $1,000 for unforeseen emergencies. All of these new distribution options can be repaid.
These provisions offers flexibility for true emergencies while encouraging long-term saving through repayment options. Income taxes may still apply, limits and effective dates vary, and availability depends on plan rules. Employees should review their plan details and consult a tax professional before taking a withdrawal.
Expand catch-up contributions
As employees begin to move closer to retirement age, they can contribute more to their retirement savings. Currently, participants aged 50 and older can contribute an extra $7,500 annually to their 401(k) account. This amount will increase to $11,250 (or 150% of the regular limit on catch up contributions, if higher) per year starting in 2025 for participants ages 60 to 63.
Catch-up provisions will be indexed for inflation. Lastly, effective January 1, 2026, all catch-up contributions for participants earning more than $145,000 will have to be made on a Roth basis.
Student loan retirement match solutions
Student loan assistance is one of the fastest growing employee benefits available to help attract and retain talent. See how you can support the financial wellness of your employees through this provision of SECURE 2.0.
- Free and low-cost solutions.
- Content and tools to help ensure participants are maximizing their benefits.
- Refinancing, repayment strategies, and contribution matching options.
- Help employees pay student down debt and save for retirement.
Learn more about this student loan solution, contact us, or watch our video.
Long-term, part-time employee eligibility
Long-term, part-time employees will now become eligible sooner under the SECURE 2.0 Act, enabling them to begin saving for their future earlier and putting them in a better position to achieve their retirement goals.
The original SECURE Act required that long-term, part-employees (those who worked between 500 and 999 hours for three consecutive years) be eligible to participate in their company's retirement plan. Under the new law, that requirement will be reduced to two years starting in 2025.
Saver's matching program
Beginning in 2027, low to middle-income employees (those earning up to $71,000 per year) will be eligible for a federal matching contribution of up to $2,000 per year that must be deposited into their retirement savings account. The match phases out based on income and tax-filing status and replaces the current Saver's Credit.
A 401(k) plan may now be more affordable than ever, thanks to the recent status of SECURE Act 2.0 legislation and tax incentives.
What is the SECURE 2.0 Act?
The SECURE Act 2.0 is a rule established in 2022 that makes most companies enroll eligible employees for the company's retirement plan automatically. Starting in 2025, Section 101 requires that employers establishing a new 401(k) or 403(b) plan enroll eligible employees automatically, with a contribution rate of at least 3%.
SECURE 2.0 Act: What employers and employees can expect
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SECURE 2.0 Act FAQs
In summary, the Secure Act 2.0 is a federal law that was enacted in 2022 and has added provisions to expand access to retirement plans through automatic enrollment, expanding and matching contributions.
The SECURE 2.0 Act is designed to encourage more employers to offer retirement plan benefits and more employees to participate in saving for their future. The law does so by updating and adding new retirement account provisions. Highlights of the Secure Act 2.0 include:
- Automatically enrolling eligible employees
- Expanding catch-up contributions
- Allowing participants to withdraw up to $1000 penalty-free for emergency expenses
- Allowing matching contributions for student loan payments
* Up to the greater of $500 or $250 times the number of eligible non-highly compensated employees up to $5,000 (minimum $500).
The SECURE 2.0 Act impacts Roth contributions in several ways. Two important changes you need to be aware of are:
- Effective January 1, 2026, all catch-up contributions to employer-sponsored qualified retirement plans for participants earning more than $145,000, will be made on a Roth basis.
- Employers may permit employees to elect that employer matching and Non-Elective Contributions be treated as Roth contributions.
SECURE 2.0 helps employees save in a number of ways:
- Increases the annual catch-up contribution amount for participants ages 60-63 to $10,000, beginning in 2025
- Increases the age for required minimum distributions from 72 to 73 in 2023 and up to 75 in 2033
- Expedites eligibility for long-term, part-time workers to participate in a plan after two years
- Employers are able to match their employee’s student loan payments within their retirement plans enabling employees to save for retirement while paying down their student debt