The Securing a Strong Retirement Act of 2022 (SECURE 2.0) is a comprehensive legislation designed to strengthen the American retirement system. The new law contains several provisions that will boost savings in workplace plans, extend support to small businesses that want to help employees prepare for retirement, and increase tax incentives for those already economically secure. The changes brought by SECURE 2.0 provide opportunities for small businesses to offer retirement plans to their employees, encourage workers to save more for retirement and create a more robust retirement system for all Americans.

What Small Business Owners Need to Know:

SECURE 2.0 brings several changes to help small business owners offer retirement plans to their employees. Here are the key changes that small business owners need to know:

1. Increases the Small Business Start-Up Credit: SECURE 2.0 increases the startup credit to cover 100% of administrative costs up to $5,000 for the first three years of plans established by employers with up to 50 employees. Small businesses joining a multiple employer plan (MEP) are also eligible for the credit. This tax credit offering provides a strong incentive for employers to establish and manage retirement offerings for employees.
2. Expansion of Automatic Enrollment: Beginning in 2025, 401(k) and 403(b) plans will be required to automatically enroll eligible participants, though employees may opt out of coverage. Small businesses with 10 or fewer employees and new businesses less than 3 years old are exempt. The expansion of automatic enrollment will help more workers save for retirement, particularly younger, lower-paid workers.
3. Establishes Starter 401(k) Plans: Beginning in 2024, employers who do not already offer retirement plans will be permitted to offer a starter 401(k) plan or safe harbor 403(b) plan to employees who meet age and service requirements. Through the starter plans, the limit on annual deferrals would be the same as the IRA contribution limit, and employers may not make matching or nonelective contributions to starter plans. The starter plan provides a great entry point for small businesses, especially given that employers aren’t required to match contributions, meaning that even the smallest of small businesses can offer something to their employees.
4. Changes Part-Time Worker Offerings: Starting in 2025, employers will be required to allow part-time employees (workers with over 500 hours per year for two consecutive years) to participate in their retirement plan after two years of service. Employees with over 1,000 hours of service must be included after one year of service. Since the workforce includes more part-time workers now than in the past, it means more workers will be eligible to contribute to employer-sponsored retirement plans.
5. Creates a Military Spouse Tax Credit: SECURE 2.0 establishes a tax credit for employers with up to 100 employees who make military spouses eligible for their retirement plans within two months of their hiring date, ensure that each military spouse is 100% vested in all employer contributions, and guarantee that every military spouse is eligible for any matching or nonelective contribution that they otherwise would only have qualified for at two years of service. The tax credit is equal to $200 per military spouse plus up to $300 in employer contributions per individual for up to three years.
6. SIMPLE Employee Elective Deferral and Catch-Up Limits: The law also raises the employee elective deferral limits for SIMPLE (Savings Incentive Match Plan for Employees) IRAs and catch-up limits by 10% for employers with no more than 25 employees. It also increases for employers with 26-100 employees if they make employer nonelective contributions of 3% or a 4% matching contribution.

What Employees Need to Know:

SECURE 2.0 also brings several changes. In addition to the above changes, SECURE 2.0 establishes a tax credit for employers who make military spouses eligible for their retirement plans within two months of their hiring date, ensures that each military spouse is 100% vested in all employer contributions, and guarantees that every military spouse is eligible for any matching or nonelective contribution that they otherwise would only have qualified for at two years of service. The tax credit is equal to $200 per military spouse plus up to $300 in employer contributions per individual for up to three years.

SECURE 2.0 also includes several changes that will benefit employees:

• Expansion of Automatic Enrollment: Beginning in 2025, 401(k) and 403(b) plans will be required to automatically enroll eligible participants, though employees may opt out of coverage. The expansion of automatic enrollment will help more workers save for retirement, particularly younger, lower-paid workers.
• Changes Part-Time Worker Offerings: Starting in 2025, employers will be required to allow part-time employees (workers with over 500 hours per year for two consecutive years) to participate in their retirement plan after two years of service. Employees with over 1000 hours of service must be included after one year of service. Since the workforce includes more part-time workers now than in the past, it means more workers will be eligible to contribute to employer-sponsored retirement plans.

Overall, the SECURE 2.0 Act offers significant improvements to the American retirement system, with changes that will benefit both small business owners and employees. By incentivizing small businesses to offer retirement plans, simplifying the administration of those plans, and expanding access to retirement savings options for more workers, the SECURE 2.0 Act takes important steps toward helping Americans better prepare for their retirement years.

For more information on the SECURE 2.0 Act, please visit the following link: https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

Disclaimer: This article is for informational purposes only and is not legal, tax, or financial advice. BCA is not a licensed professional services firm. We help clients assess their situations and work with licensed attorneys, tax advisors, and other qualified professionals on your behalf. Read our full Disclaimer and Terms of Use. Have questions? Contact BCA and let us put the right team together for you.