The Retirement Savings Crisis
The Securing a Strong Retirement Act, also known as SECURE Act 2.0, was signed into place in December 2022. This law introduced new rules and requirements for retirement plans, all aimed at helping Americans save more money for their retirement. This comes as good news for working Americans who worry that they won’t have enough money when they retire.
A 2021 report from the National Institute for Retirement Security highlighted how a lot of U.S. workers are concerned about their retirement savings. It showed that most people believe there’s a real crisis, and many fear they will have to work beyond the age of retirement just to survive. For them, the new rules from SECURE Act 2.0 could be considered a lifesaver.
Unfortunately, however, they are causing real challenges for organizations. Those who rely on manual processes to make sure they remain compliant may find them especially challenging.
The new regulations will be enforced starting on December 31, 2024. That means organizations need to get ready pretty quickly.
Understanding SECURE Act 2.0
To better understand these new rules and what organizations need to do to prepare, let’s take a closer look at the details.
- Section 101: Automatic enrollment is required for all new 401(k) and 403(b) plans implemented after December 29, 2022. Additionally, enrollment must be set between 3% and 10% of the employee’s pay and increased by 1% each year until it reaches 10% to 15%.
- Section 125: Reduced eligibility requirements for 401(k) plans make it easier for part-time workers to join 401(k) plans. Instead of three years, employees must have worked at least two consecutive years, with at least 500 hours of work each.
- Section 603: Catch-up contributions are available for individuals 50 years or older, who earned over $145,000 last year. It allows them to classify catch-up contributions as Roth contributions. This offers significant tax benefits.
Unfortunately, these changes make it more complicated for companies needing to update their systems to handle these new rules.
Overcoming Implementation Challenges
Following these new rules can be really hard for smaller organizations because they have to do a lot of things manually. Unfortunately, the manual approach makes it more likely that human error in the process will go unnoticed until it’s too late. The potential consequence of this oversight can be extreme. Your company could face fines for even one tracking error.
Therefore, it’s vital to begin preparing for compliance immediately if you are affected by SECURE Act 2.0’s Section 125 and/or Section 603.
Does your company have the necessary technology in place to face this and the other challenges it faces?
Technology Solutions for Compliance
To ensure compliance, companies require the right technology. They need to be able to transfer a lot of data between their systems and the retirement plan providers’ systems. This includes payroll details and other sensitive personal identifiable information (PII).
Companies can choose from various methods including:
- Manual Data Entry
- Custom Integrations
- Unified employment APIs
Each has its benefits. The more automated the system is, the more accurate it is. The simpler and less expensive the method is, the more likely it is to result in costly mistakes.
Getting help from professional retirement advisors can help you assess your options and make the right choice for your company.
The Role of Retirement Advisors
Ideally, you should be planning and securing the support and tools you’ll need for 2.0 now. To ensure your company’s retirement landscape remains compliant, consider seeking the assistance of a professional retirement advisor. Advisors can:
- Inform you of important deadlines and keep you on track.
- Help you choose the right retirement plans.
- Explain what your company needs to do to follow the rules.
- Ensure compliance and safeguard you from legal consequences.
- Recommend tools to make sure the company is ready for the changes.
The right retirement advisor can be a valuable asset for companies wishing to identify and avoid potential pitfalls before SECURE Act 2.0 goes into effect.
A Final Note
With a looming retirement crisis, the need for change is apparent. SECURE Act 2.0 aims to provide opportunities for US workers to save for a secure retirement. Unfortunately, the manual processes used by many organizations present an increased risk of errors that could result in non-compliance.
Therefore, it is essential for plan providers and employers to begin enlisting support and implementing the correct technology to automate their systems. With the right resources, you should be able to seamlessly integrate your systems, reduce errors, and ensure compliance with SECURE Act 2.0–effectively and on time.