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Unlocking the Potential of the SECURE 2.0 Act: A Forward-Thinking Outlook
Summary
Explore the impact of the SECURE 2.0 Act on 401(k) strategies, boosting retirement savings, and employer contributions.
With some provisions already in motion and more on the horizon, fiduciaries overseeing 401(k) plans with assets ranging from $2 million to $150 million are urged to embrace proactive strategies to unlock the full potential of these advancements. By taking early steps towards understanding how SECURE 2.0 Act provisions may impact enrollment, contributions, and the overall landscape of retirement plans, it paves the way for alignment with regulatory standards while catering to the diverse needs of employers and employees alike.
Long-term part-time worker eligibility
Effective Jan. 1, 2025, a pivotal shift in eligibility criteria grants employees with at least 500 hours of service annually for two consecutive years access to the plan. This adjustment streamlines the path for part-time employees to qualify for the retirement plan, prompting a reevaluation of immediate eligibility considerations across different plans.
Automatic enrollment and escalation
Newly established 401(k) or 403(b) plans post-Dec. 29, 2022, are mandated to automatically enroll eligible employees, commencing with the plan year starting Jan. 1, 2025. Automatic escalation features, steadily increasing contributions over time, usher in a new era of participant engagement with implications extending to diverse realms like company mergers and multi-employer setups.
Super catch-up contributions
A significant enhancement scheduled for 2025 introduces super catch-up contributions under the SECURE 2.0 Act legislation. This provision empowers plan sponsors to enable employees aged 60 to 63 to make augmented catch-up contributions of up to $10,000 annually. This new limit is significantly higher than the regular catch-up contribution limit, allowing these employees to boost their retirement savings substantially.
To capitalize on this opportunity, it is crucial for plan sponsors to meticulously track employees’ ages, ensuring that those within the specified age range are informed about their eligibility. Clear communication and precise implementation strategies are paramount to achieving optimal outcomes and helping employees maximize their retirement savings during these critical years.
Roth matching and non-elective contributions
The flexibility offered since 2022 to choose between traditional pre-tax and Roth contributions for employer contributions paves the way for enhanced control over retirement savings’ tax treatment. Recent IRS guidance clarifications underscore the importance of reassessing the incorporation of this option, aligning it with overarching plan objectives for maximum benefit.
Seizing strategic opportunities
From force-out provisions to auto portability networks and innovative student loan payments matching, SECURE Act 2.0 unfolds a tapestry of possibilities aimed at enhancing retirement planning efficacy. By proactively navigating these developments, we can strategically position your plan for resilience and success. Should questions arise or guidance be needed, do not hesitate to reach out. Together, let’s embark on a journey of strategic preparedness and proactive planning, ensuring your plan is well-equipped to navigate the evolving landscape of retirement planning.
To learn more, reach out to discuss your company’s retirement plan needs and explore how Mercer Advisors can support your journey towards a more prosperous and secure future for your employees.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
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