4 ways SECURE 2.0 will impact retirement in 2024

January 9, 2024 10:14 AM

Woman looking through stacks of paperwork

With the start of the new year comes another wave of changes to the retirement landscape. As 2024 gets underway, provisions within SECURE 2.0, legislation passed in 2022, will continue to roll out to support retirement preparedness for millions of American workers.

SECURE 2.0 includes 90 provisions that make 401(k) plans available to more employees, help to ease administrative burdens for plan sponsors, and address other financial challenges, like student loans and unexpected emergency expenses, that impact an individual's ability to save for retirement.

This legislation is a much-needed tool for employers and employees alike: While 68% of private industry employees have access to an employer-sponsored retirement account like a 401(k), almost half do not contribute to it, according to data from the Bureau of Labor Statistics. As such, 80% of American households are financially unprepared for retirement, according to a McKinsey survey.

SECURE 2.0 is meant to fill many of these gaps, but keeping track of what provisions will be implemented and when can be a headache for HR leaders and plan sponsors. Staying on top of the calendar can give employees a head start on their retirement savings this year.

"I'd encourage employers to lean on their partners for best practices around implementing the new provisions," says Mike Conrath, chief retirement strategist at JPMorgan Asset Management. "For employers who might have been reticent in the past about offering a workplace retirement plan due to costs, SECURE 2.0 helps to remedy that issue."

Here are four provisions that will take effect in 2024, and what employers need to do to prepare for these changes.

Student loan payments qualify for an employer-provided match

Saving for the long-term is a challenge when short-term financial hardships like student loan debt take precedence. Sixty-seven percent of those with loans say their debt prevents them from contributing to their retirement plan, according to a study by Fidelity.

But there is relief: This year, SECURE 2.0 will allow employers to match a percentage of an employee's student loan payment and direct it into a retirement plan. Employees can be paying off their own loans or a spouse or dependent's to be eligible for the match. Employers will need to coordinate with their plan sponsor to ensure a student loan match can be implemented into their existing 401(k) or 403(b) plan.

"For someone shouldering college debt, it can be a difficult decision around how to spend a given extra dollar when juggling both loans with retirement savings," Conrath says. "Student debt can negatively impact how much a worker saves and accumulates in their retirement nest egg. With the new matching provision in SECURE 2.0, employers can set up their employees for success in tackling both goals while helping them build a more sound financial picture overall."

Emergency savings accounts can be linked to retirement plans

Well before retirement, Americans face an onslaught of unexpected expenses that can derail or delay their savings plans. Most employees are woefully unprepared to shoulder these additional costs: More than a third of individuals cannot afford a surprise $400 expense, according to the Federal Reserve.

"Households without an adequate cash buffer take on debt, become financially more vulnerable and find themselves at risk of not achieving a successful retirement outcome," Conrath says. "By offering an in-plan emergency savings account, and even pairing it with automatic enrollment, employers can encourage more employees to have at least some money set aside for unanticipated expenses while also helping set them up for retirement readiness."

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How SECURE 2.0 pushes employers to support emergency savings

SECURE 2.0 now offers employers the option to auto-enroll employees into an emergency savings account, directing up to 3% of their salary into the fund. Employees can save up to $2,500 into the account, and additional money would then go into their retirement account.

Employees can access some of their money penalty-free in case of hardships

While employees build up their emergency savings, there are still unfortunate circumstances when it's necessary to take a hardship withdrawal from a retirement account. Previously, those funds were subject to a 10% early withdrawal fee, but SECURE 2.0 will allow a penalty-free $1,000 withdrawal annually. Additionally, in cases of domestic abuse, individuals can withdraw up to $10,000 or 50% of the value of their account penalty-free.

Small businesses get a starter 401(k) and 403(b) option

Less than a third of small businesses with less than 10 employees offer a retirement savings account, according to a survey by Paychex. SECURE 2.0 now offers businesses without a retirement plan access to a "starter" 401(k) or 403(b) plan, which employees will be automatically enrolled into. Contributions are capped at $6,000 per year, compared to the 2024 limit of $23,000 for employer contributions into a traditional 401(k) or 403(b). Additionally, employers will not be permitted to match any contributions.

"These can certainly be a streamlined option for small businesses who currently don't maintain any other plan," Conrath says. "Automatic enrollment is required at a rate of at least 3% but no more than 15% of pay, which can help employees get a start on their retirement savings. This can be a win-win for employers and employees alike."