In our PayDay from May 4, 2023 titled “Brand New Retirement Plan Options,” we summarized various provisions of the Secure Act 2.0, a new retirement plan legislation which impacts all types of employer-sponsored retirement plans—–401k, 403b, 457 government, and includes some SIMPLE IRA positive changes as well. As the article explains, the Secure Act 2.0 contains over 90 new provisions impacting retirement plans, with some provisions becoming effective in 2023, others effective in 2024, next year 2025 and even into 2026. Please read the original PayDay article of ours since it does contain a summary of major provisions which impact employer plans and integrate with payroll/HR.
ASK YOUR ADVISORS ABOUT HOW THE SECURE ACT 2.0 IMPACTS YOUR PLAN, OPPORTUNITIES AND OBLIGATIONS—–VERY IMPORTANT!!
Retirement plans require consideration of tax laws, retirement plan/labor laws, and employment choices/options. With the original Secure Act in 2019, and especially with Secure Act 2.0, EVERY EMPLOYER SHOULD ASK THEIR PLAN PROVIDERS, TPA’S, PLAN CONSULTANTS AND CPA’S how their plan(s) are impacted by Secure Act 2.0 provisions—–major opportunities for plan improvement but also some significant requirements such as automatic enrollment of new hires for certain employers. TALK TO THE PROS ABOUT YOUR CURRENT PLAN AND RECOMMENDATIONS TO IMPROVE YOUR EXISTING PLAN.
NEW SUPER CATCH-UP OF EMPLOYER CONTRIBUTIONS STARTING JANUARY OF 2025
If an employee attains ages 60 to 63 during 2025, they can increase their age 50 catch-up contributions by 50% in 2025 over the regular age 50 catch-up contributions. An employee turning ages 60-63 during 2025 (not older than that) can increase their age 50 catch-up contribution to a 401k/403b/457 government plan from $7,500 to $11,250 in addition to the “regular” 2025 non-catch-up contributions. The “super catch-up” to a SIMPLE IRA plan for that specific age group increases from $3,500 to $5,250 in 2025.
SIMPLE IRA ROTH EMPLOYEE CONTRIBUTIONS STARTED IN JANUARY 2023
The Secure Act 2.0 provided that a participant in an employer SIMPLE IRA plan could elect to contribute in an after-tax Roth fashion to their SIMPLE IRA account, putting the SIMPLE plan on par with similar provisions offered by 401k, etc plans. HOWEVER, you do need to make sure that the employer’s SIMPLE IRA plan sponsor (financial institution) permits Roth funding by employees to SIMPLE IRA accounts—–I have been surprised that some of the very largest financial institutions/plan custodians have not yet “offered” to administer SIMPLE IRA Roth plans—-so check with your plan sponsor as to whether they are setup to administer a SIMPLE Roth IRA plan to your employees—-AccuPay just ran into this issue recently with Capitol Group/American Funds having amended their SIMPLE IRA plan to permit Roth funding, but Charles Schwab has not yet done so and could not provide me a date in which they would do so——retirement plans generally require tax law permission in addition to plan provider documents/administration to implement legal plan provisions.
EMPLOYER MATCHING OF EMPLOYEE CONTRIBUTIONS WITH EMPLOYER ROTH FUNDS
Effective January of 2024, the Secure Act 2.0 provided that employees of 401k/403b/457 government plans could individually “elect” for their employer to “match” the employee contributions in a Roth “after-tax” manner. This provision, IF the employer wishes to provide that option, also requires that the plan provider/recordkeeper have infrastructure in place to accept employer Roth matching funds in order to provide this option to plan employees. Administratively, plan recordkeepers/administrators keep pre-tax funding separate from after-tax Roth since they are taxed differently when an employee retires and receives distributions from their 401k/403b/457 retirement plan. This new option in the Secure Act 2.0 will also require that the plan recordkeeper send 1099R “taxable income forms” to employees electing Roth employer matches since the Roth funds are taxed up front but never again—–so the plan administrators are gradually catching up to be able to implement this brand new retirement plan concept created by Secure Act 2.0.
MANDATORY AUTOMATIC ENROLLMENT OF NEW EMPLOYEES INTO EMPLOYER 401K/403B PLANS
Starting January of 2025 (now!), some employers who adopted their plans after December 28, 2022, are required to “auto enroll” new hires into their plan and withhold at least a 3% employee deduction/elective deferral from the new employees—statistics have shown that new employee participation in employer retirement plans increases with automatic enrollment instead of offering enrollment documents to the new employees. New employees have a timeframe in which they can terminate their participation of employee contributions (and get their previous money back). Examples of employers who will be exempt from auto enrollment are SIMPLE IRA plan sponsors (does not apply), “church plans” (but not 401k plans adopted by churches), and government 457 plans. TALK WITH YOUR PLAN PROVIDER/PLAN CONSULTANT AS TO WHETHER AUTOMATIC ENROLLMENT APPLIES TO YOUR PLAN!!
STARTUP 401K/403B PLAN TAX CREDITS
The Secure Act 2.0 provides for two different types of federal income tax credits to incentivize employers with 100 or fewer employees to establish new qualified retirement plans. An employer with an existing SIMPLE IRA plan cannot obtain these credits by adopting 401k/403b plans. The income tax credits offered to employers starting new plans are of two types, as folllows:
- Tax credits are generated for all or a portion of the “startup costs” which are incurred by the employer to adopt a new 401k/403b retirement plan with no previous qualified plan offered—-the credit amounts differ based on how many employees the employer has; and
- Yet more significant federal income tax credits are offered to employers of new “startup plans” to offset the employer’s matching funds, with a tax credit structure going on for up to 5 years and revolving around the employer contribution amounts.
RETIREMENT PLAN PROVIDERS AND/OR YOUR TAX ADVISOR/CPA CAN PROVIDE YOU WITH DETAILS ON HOW TO CALCULATE THESE TWO TYPES OF INCOME TAX CREDITS AS WELL AS HOW TO CLAIM THEM ON YOUR BUSINESS INCOME TAX RETURNS.
SOME MISCELLANEOUS PROVISIONS OF SECURE ACT 2.0 WHICH YOU MAY WISH TO DISCUSS WITH YOUR PLAN CONSULTANTS
- Permitting “long-term part-time employees” to participate in your retirement plan—-generally offering enrollment to employees who have worked at least 500 consecutive hours for you per year for the preceding two years.
- Employer retirement plan matching option for employees who are paying student loan debt—-this option would provide a retirement plan employer match to employees who are making student loan debt payments—-the theory is they can not afford both loan payments and retirement funding.
- A plan option in which employees can contribute to an “emergency savings account,” with “access rules to them,” and the employer matches those employee savings account contributions with retirement plan dollars.
- Starting with 2026, catch-up contributions by employees earning at least $145,000 in wages will only be permitted if made with after-tax Roth funds—-this would not apply to “regular, non-catch-up” employee elective deferrals.
INTEGRATION WITH PAYROLL SYSTEMS
AccuPay has integrations setup with many of the larger retirement plan providers. This allows information to flow between the provider/TPA and the employer’s payroll/benefits portal in AccuPay’s isolved software platform, creating an accurate, efficient process for enrolling and updating employee information in both systems. Ask your payroll specialist if you would like to explore possible integration of your retirement plan with your plan provider/TPA.
The number of firms/people involved with your retirement plan administration, recordkeeping, investing and employee enrollment can be a bit overwhelming, with each “service provider” having their own specific role in accurate operation of your employer plan. We wrote a PayDay a few years ago called “Quarterbacking Your 401k Plan”. Identifying “who does what” is more important and complex now than ever with increasing complexity in retirement plan laws/rules of engagement.
CONCLUSION—–REVIEW YOUR PLAN WITH EXPERTS AND EDUCATE EMPLOYEES ABOUT PLAN PROVISION CHANGES
Make sure that you have “retirement plan experts” review your existing and any future retirement plans to ensure you understand all of the new retirement plan opportunities as well as mandatory plan options. My personal opinion is that your plan provider, TPA, etc should be willing to provide you with two services, as follows:
- Meet with you to make sure you understand how Secure Act 2.0 applies to you, ensuring that your plan meets your objectives, and that you select plan options which appeal to you and your employee demographics; and
- Enthusiastically offer to meet with your employee group to educate them on plan options, both up front and ongoing——retirement plans cost money and time, and you want your employee group to understand and appreciate them!!
DO NOT BUY A RETIREMENT PLAN OUT OF A BOX!!—-WORK WITH RETIREMENT PLAN EXPERTS WHO ALSO TAKE PRIDE IN EDUCATION AND SERVICE—–REVIEW YOUR CURRENT PLAN WITH AN EXPERT, NOT A SALES REP!!
If you would like more information about AccuPay contact us at info@accupay.com.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.