The U.S. government’s $1.7 trillion dollar spending bill just passed by Congress has something that needs business attention. Buried in that 4,155 page bill is a proposal to change how retirement plans work.
It could have a huge impact on some employers.
The plan is called the Secure Act 2.0. The idea behind the bill is to help grow low and middle-income employee retirement savings, and access to 401(k) and other retirement plans. The idea behind the Secure Act 2.0 is to help employees who don’t have a retirement plan, or the plan they have isn’t all that good, or for those with a lot of student debt.
Will Hansen is the American Retirement Association’s chief government affairs officer. He said this action is the most the government has done with retirement plans in 15 years. “These provisions will increase the number of small businesses that are offering a plan, as well as increase the savings Americans are putting aside for retirement,” he said.
Here’s what the proposal looks like:
Automatic enrollment: In 2025 most businesses will be required to enroll employees in a 401(k) plan. The employee will add to their plans with 3% to 10% of their wages. That figure will go up 1% every year until it hits at least 10%.
It won’t go to more than 15%.
Businesses with 10 or fewer employees, or that have been open less than three years, are exempt. Churches are also exempt. So are government plans.
The government match: Workers who make less than $71,000 will be eligible for a federal government match of 50% up to $2,000. So the federal government — at maximum — will be out $1,000 per employee.
Still, considering the number of employees working full-time and part-time, that is a significant amount of money.
Cash from business will be deposited directly into the retirement accounts.
Early withdrawals: As it stands now, an early withdrawal from a 401(k) can cost a person a 10% tax. Under this proposal, an employee can take one penalty-free withdrawal for a family or personal need.
If the amount is repaid, employees can take up to $1,000 a year. If the amount isn’t paid back, then another withdrawal cannot be made for three years.
Emergency savings plan: Over half of us would not be able to cover an unexpected expense totaling $400 or more. Close to 60% with retirement plans and no emergency savings, have had to go to the retirement plan to cover the expense.
The Senate Finance Committee — who is looking at this proposal — found that those with at least one month’s worth of emergency savings could find it making a difference.
The changes being proposed will give an employer the option of offering a savings account to employees getting lower wages. It will be connected to their long-term retirement plan.
That account tops off at $2,500.
Part-time workers: A big change in 401(k) plans involves part-time employees. Currently, if a part time worker has been with their current employer, and have worked 1,000 hours or more, or three years with 500 hours a year, they can qualify to be a part of a 401(k) plan.
The new law drops the three years to two.
401(k) distribution: Currently, the law says those with 401(k) plans must take out money starting at age 72. This is to make sure they use the money rather than save it to pass onto their estates.
Under the new proposal, that age will go up to 73 in 2023, and by 2023 the age will rise to 75.
Matching student loans: Those with burdensome student loans might not be able to fund a retirement account, too. This keeps them from getting those all-important employer matches.
The proposal would change that and allow employers to put money into a 401(k) based on the amount of money the employee pays into their student loans. Source link: The Washington Post — https://bit.ly/3Z9uvXe
