What to Know About SECURE 2.0 in 2024

Getting employees, particularly younger ones, to contribute to a retirement plan has long been a challenge for employers. However, with the passage of the SECURE 2.0 Act of 2022 (SECURE 2.0), employers have an opportunity not only to help employees increase their retirement savings, but to expand the utility of 401(k) plans for employees in all age and income groups.

Although many provisions of SECURE 2.0 will take effect in the future, some of the most significant ones became available for plan years starting Jan. 1, 2024. They include:

1. The ability of employers to make retirement plan matching contributions based on the amount of an employee’s student loan repayment, even if these employees do not contribute to the plan themselves.
2. The introduction of an employee emergency savings vehicle into retirement plans.
3. Two opportunities for employees to tap their retirement savings in an emergency without penalty.

These are areas where SECURE 2.0 can make a real difference, and they also point to an expanded role for 401(k) plans as a tool for more broadly supporting participants’ financial security and well-being, industry experts said.

“These new provisions build on the continuum of strategic options [retirement] plans can provide to employers and employees,” said Holly Tardif, director of retirement with WTW. This can range “from building retirement savings to helping participants build greater financial resilience as a driver toward greater retirement readiness.”

Employers interested in adopting these provisions should talk to their plan service providers about amending their plans and any other necessary steps.

“These are optional tools, rather than something employers are required to implement,” said Julia Zuckerman, vice president with consulting firm Segal. “Whether employers use these tools will depend on their goals.” She also noted that some plan sponsors may not want to be the first out of the gate and will wait and see how record keepers administer the new provisions before adopting them.

Here are more details about how employers can take advantage of the key provisions.

Overcoming the Student Loan Barrier

Perhaps the most celebrated new provision in SECURE 2.0 is the one allowing plan sponsors to make matching contributions to a retirement plan based on the amount of an employee’s monthly student loan repayment rather than the amount of the participant’s contributions to the retirement plan.

After all, it is not news that student loan payments and other financial priorities often take precedence over saving for a retirement decades in the future.

As a result, employees making less than $200,000 per year don’t start saving for retirement until a median age of 28 to 30 years old, according to the 23rd annual Transamerica Retirement Survey of more than 10,000 workers released in 2023. Keep in mind that this is the median age, which means that nearly half of participants start saving even later.

Even those who participate in a retirement plan while paying off student loans lag behind their peers in overall contributions. A new study out this month from the Employee Benefit Research Institute found that after a three-year period, student loan repayment has a negative impact on both average employee contribution rates and retirement account balances. For example, among employees earning $55,000 or more with a tenure of 5 to 12 years, average account balances were $86,109 for those with student loan repayments and $107,687 for those without.

Help in an Emergency

SECURE 2.0 also allows employers to turn a retirement plan into a helping hand for emergencies in two ways.

First, the law allows plan sponsors to introduce an emergency savings component to their retirement plans. Employers can automatically enroll non-highly compensated employees (those earning up to $150,000 annually) in an emergency savings account, with any contributions made on an after-tax basis. Employee contributions are limited to 3 percent of pay up to $2,500 per year, with any employer match capped at $2,500 per year. Second, any participant can withdraw up to $1,000 for emergency expenses without penalty before they reach age 59 1/2. These participants have up to three years to repay the withdrawal.

Second, employers can adopt a provision designed to help participants who have experienced domestic violence by providing important financial support as these individuals look to change their lives and living situations during a stressful time. SECURE 2.0 allows an employee in this situation to withdraw either $10,000, which is indexed for inflation, or 50 percent of their vested account balance, whichever is less.

Given the documented impact of domestic violence on worker productivity and how frequently it can spill over into the workplace, many employers have a vested interest in allowing employees to access these funds.

These distributions must take place within 12 months of the domestic violence incident, as certified by the plan participant, and are not subject to the 10 percent penalty on plan distributions before retirement age. In these cases, the employee would have to pay income tax on the withdrawal but could receive a refund on those taxes if they repay the amount of the withdrawal within three years.

Early Adopter or Wait and See?

Before implementing these new SECURE 2.0 options, employers will need to evaluate their potential impact on plan costs, record-keeping and nondiscrimination testing, as well as any ripple effects on overall plan governance, design and oversight.

Adopting these new plan features will require some administrative changes, often in coordination with multiple vendors including retirement plan record keepers and payroll providers. These options may also lead to higher overall plan costs by increasing the budget for matching contributions, for example.

However, if employee demographics and other data indicate that offering these options would be helpful to and appreciated by employees, early adoption may offer some advantage. Employers with a highly educated workforce may know immediately whether matching contributions based on student loan repayment amounts is relevant to employees and their own recruiting and retention goals. In other cases, an employee survey can help identify how much employees are likely to value student loan repayment and access to emergency savings.

This type of review can also reveal how these new provisions could support or enhance existing benefits. For example, matching contributions based on student loan repayments could become an important complement to an existing tuition reimbursement program.

SECURE 2.0 presents an opportunity “to review the purpose of defined contribution retirement plan[s] and adjust anything that does not align with that approach,” Tardif said. “There is no one right answer. It depends on what you want to achieve. Think of it as a journey, adding some changes now and other changes later.”

With each step, employers can transform a retirement plan into a lifetime savings program. For example, student loan repayment matches can be a way to get younger employees focused on retirement planning early in their careers. As their balances grow, they may remain interested in the plan and understand the importance of saving and investing long after their student loans are paid off.

Other Provisions of Note

There are other important provisions related to retirement plans in SECURE 2.0 that employers should keep in mind. Industry experts note that plan sponsors should ask plan service providers for specific guidance on how to manage each change. 

• Starting in 2024, employers whose plans feature automatic enrollment and escalation will now have nine months after the end of the plan year to correct any related mistakes.
• Also starting this year, employers will have more leeway to close out small retirement account balances belonging to departed employees. SECURE 2.0 allows plan sponsors to automatically roll over employee plan balances of up to $7,000 into a default individual retirement account or a new employer’s plan unless the departed employee requests otherwise.
• In 2025, new provisions take hold for automatic enrollment, larger catch-up contributions, and the creation of a national database to track former plan participants.
• In 2026 and later, there will be new provisions on age-based catch-up contributions and a requirement for paper plan statements to be delivered to participants at least annually.

Joanne Sammer is a freelance writer based in New Jersey.