As evidenced by the recent passing of the SECURE 2.0 Act, we are entering a new era for the retirement and savings industries. We expect SECURE 2.0 will have a monumental impact on small businesses and savers across the country. The legislation increases accessibility to essential savings programs for those typically left out of the equation: small businesses with limited budgets, part-time employees, savers with student loans, those with disabilities and much more.
SECURE 2.0 also brings a great opportunity for retirement plan advisors: the ability to serve a massively expanded market while increasing revenue from current customers. Below are some important details on retirement plan provisions. Please note that all provisions are summarized for brevity. Please refer to the act for clarification and specificity.
New Tax Incentives
SECURE 2.0 has introduced a tax credit for employers to offer a defined contribution plan. As these credits will significantly reduce the cost of offering a workplace retirement plan, I believe advisors will see significant interest from small businesses because of these incentives.
Employers with less than 50 employees can receive a startup credit of 100% of administrative expenses up to $5,000 per year for three years. Small-businesses starting a new plan can also receive an enhanced tax credit for employer contributions for certain employees of up to $1,000 per employee. The act also expands the opportunity for part-time employees to participate.
Employers are now also able to offer small incentives, like a gift card, to further encourage participation in the plan. This may be an opportunity for advisors to support their small-business clients and offer creative ways to encourage employee participation in their new retirement plans.
Mandated Auto-Enrollment and Auto-Escalate
Another interesting element of SECURE 2.0 is auto-enrollment. New defined contribution plans will be required to automatically enroll employees once they become eligible to participate in the employer’s retirement plan. This is a great opportunity to get more people saving across the country and for advisors to engage with employees who are newer to saving in the workplace.
Enrollment for affected employees would begin with a 3% pretax contribution that gradually increases by 1% each year, up to at least 10% but not more than 15% of the employee's earnings. Employers are also able to opt out of participation if they do not wish to be enrolled in the workplace savings plan. Existing retirement plans do not have to meet these requirements and there may be additional exemptions for businesses with 10 or fewer employees, those in business for less than three years, church plans and government plans.
Employer Matching of Qualified Student Loan Payments
This provision has the capacity to be a game changer for the majority of the nation that carries student debt. Beginning in 2024, employers are permitted to match (up to a certain limit) qualified student loan payments as contributions to retirement for employees with student loans, opening the door for strained employees to pay off their loans while saving for retirement at the same time. Employers looking to attract and retain new talent will want to utilize this new provision, creating a new opportunity for advisor support.
SECURE 2.0 provides businesses with more options to offer a workplace savings plan that best fits their organization. Advisors will be critical to helping these employers decide which plan is best for them, given their current stage of operation. Those employers that do not offer a 401(k) or 403(b) may consider offering a Starter-(K). These plans are similar to the payroll-deducted Secure Choice IRA solutions that a number of the states, such as Oregon, Connecticut and Colorado have recently mandated. In these plans, employees can be automatically enrolled at a 3%-15% deferral rate, capped at the same annual contribution limit of a 2024 IRA.
There is a lot more we can further unpack in the SECURE 2.0 Act, but on the whole, this newly passed bill has the opportunity to positively impact more financial lives than anything we’ve seen in decades. In addition to helping to provide access to retirement plans to millions of Americans, SECURE 2.0 also brings many opportunities for financial advisors to rapidly scale their practices. These largely underserved segments create a rapid growth and expansion opportunity for advisors while helping close the savings gap across the country.
Aaron Schumm is founder and CEO, Vestwell.