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Secure Act 2.0 impact on your business.

SECURE Act 2.0 was signed into law in late 2022, delivering dozens of new retirement-related provisions. The act addresses issues related to retirement and savings that were not part of the original SECURE Act, creating new flexibility and accessibility to help individuals plan for a more secure future. Here are some of the key provisions that could have the greatest impact: 

1. Higher Required Minimum Distribution Age: The RMD age is raised from 72 to 73 for 2023 and increases to 75 starting January 1, 2033.

2. Required Minimum Distribution Excise Tax Reduction:  Beginning in 2023 penalty for failure to take required minimum distributions is decreased from 50% to 25% and decreased even further to 10% if the failure is corrected timely.

3. Increased Catch-up Contribution Allowances: Starting in 2025, participants between the ages of 60 and 63 will have their catch-up contribution limit increased to the greater of $10,000 or 50% higher than the regular catch-up amount.  This will give participants in this age range the ability to save even more money for retirement.

4. Automatic Enrollment: Effective 2025, eligible employees are required to be automatically enrolled in a new 401(k) plan, that has at least 11 plus employees and in business for 3 plus years, with a contribution rate between 3-10% rising by 1% annually up to 15%.  Participants will have the ability to opt out of the automatic enrollment feature.  Existing plans are grandfathered.

5. Employer-offered Incentives: Plan Sponsors are now permitted to offer de minimis gift cards or other financial rewards to boost employee participation in retirement plans.  This change is effective immediately.

6. Long Term Part-Time Employees: Effective 1/1/2025, plan sponsors are required to allow part-time employees who work at least 500 hours a year for two consecutive years to contribute to the company 401(k) Plan.

7. Paper Statements: Requires plan sponsors to provide participants with at least one paper account statement per year, unless the participant elects otherwise.  This provision is effective 1/1/2026.

8. Matching Contributions on Student Loan Payments: Beginning 1/1/2024, employers will be permitted to make qualified retirement plan contributions to employees who are not contributing to the plan if that employee is making qualified student loan payments.

9. Withdrawals for Emergency Expenses: Emergency distributions of up to $1,000 are permitted for unforeseeable or immediate financial needs once per year, to be paid back within a three-year period.  These distributions will not be subject to the usual 10% early distribution penalty.  If the distribution is not repaid, a participant will have to wait three years before being allowed to take another emergency distribution.  This provision is effective 1/1/2024.

SECURE Act 2.0 rules around retirement savings and retirement plan distributions will change over the course of the next few years. As you navigate and take advantage of these regulatory changes for your business and employees, we're here to help. Contact your Relationship Manager or call us at 717.824.8471 to schedule a consultation. 

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The Author

BT Trefsgar

BT joined Fulton Financial Advisors in 2020. He has over 12 years of experience in the retirement services industry. BT is responsible for current client service, new business development, plan design consultation, and plan conversions. BT earned a BS degree in Business Administration from the University of Richmond. He also earned the Certified Plan Fiduciary Advisor (CPFA) credential through the National Association of Plan Advisors (NAPA) and holds the FINRA series 65 professional designation.