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    SECURE 2.0: Adjusting Employer Regulations to Avoid a Retirement Crisis

    A retirement crisis is looming for many Americans. According to Forbes, “Approximately 50% of Americans have consistently reported that they will struggle, or are currently struggling, with their retirement finances. With approximately 10,000 people turning 65 each day for the next two decades, that represents an avalanche of gray-haired unease.”

    A new bill currently making its way through Congress seeks to avoid the worst effects of this crisis by adjusting employer regulations around 401(k) plans to improve retirement savings for millions of employees across the country. The bill is called the SECURE Act 2.0, and it adds to the provisions laid out in the Setting Every Community Up for Retirement (SECURE) Act z>that was signed into law in 2019.

    According to a bi-partisan, joint statement by chairmen of the House Ways and Means Committee, "This legislation expands automatic enrollment, simplifies many retirement plan rules, and strengthens small businesses’ ability to offer workplace retirement plans, to make it easier for Americans to plan for their golden years."

    SECURE 2.0 includes certain provisions that were not laid out in the original act. In this blog post, we’ll review these additional provisions proposed in SECURE 2.0 and discuss the impact they may have on employers and people saving for retirement across the country.

    Mandatory Implementation of Auto-Enrollment for 401(k) Plans

    What impact does implementing auto-enrollment for 401(k) plans of new hires have on their retirement savings? According to industry publication, 401(k) Specialist:

    • Among new hires, participation rates triple to 91% with automatic enrollment, versus 28% under voluntary enrollment.
    • After three years, 92% of participants hired under automatic enrollment were still participating vs. 29% of participants using voluntary enrollment.
    • Over time, nine in 10 automatically enrolled participants increased their deferral rates and more than 75% of plan participants remained exclusively invested in the default investment fund.

    The SECURE 2.0 Act seeks to capitalize on these trends and increase participation in retirement savings among American employees by requiring employers who establish defined contribution plans after 2021 to begin automatically enrolling eligible employees into the company’s 401(k) plan at a pre-tax contribution level equal to 3% of the employee’s pay. The contribution level would increase by 1% per year, up to at least 10% but no more than 15%. Employees can always opt to elect a different contribution level, but these are the levels in which they would be automatically enrolled.

    The SECURE 2.0 Act makes exceptions for auto-enrollment for small businesses with 10 or fewer employees, businesses that have been established less than three years, churches, and certain government and non-profit organizations.

    Additional Provisions Proposed in the SECURE 2.0 Act

    In addition to making auto-enrollment into employer-sponsored 401(k) retirement plans mandatory, SECURE 2.0 also seeks to:

    • Expedite part-time employees’ participation in plans by shortening the eligibility period from three years to two.
    • Allow employers to make matching contributions to 401(k) accounts based on the employees’ student loan repayment activity, even if that employee is not contributing to their retirement account.

    According to SHRM, further provisions of SECURE 2.0 include:

    • Creating a national database for employees to find lost retirement accounts.
    • Expanding opportunities for self-correction, including participant loan errors and employee elective deferral failures.
    • Requiring the Treasury Secretary to take steps to increase public awareness of the Retirement Savings Contributions Credit (also known as the saver's credit), available to low- and moderate-income workers.
    • Extending to 403(b) retirement plans some of the design features of 401(k) plans.
    • Eliminating certain barriers to offering lifetime income annuities as a retirement plan investment option.

    Setting up a 401(k) retirement plan for your business can be a complex task, but you don’t have to tackle it on your own. Consider partnering with SWBC. We can help you get started, choose and manage your plan, and take you through the process of setting up 401(k) auto-enrollment for your company. Click here to learn more about our retirement plan development services!

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    Mark Travis

    As Senior Financial Advisor for SWBC, Mark Travis has built long-term client relationships by providing comprehensive financial expertise, service, and oversight. Mark is well versed in helping clients solve complex and unique financial challenges, especially in his work with high-net-worth individuals, charitable entities, ERISA-covered defined benefit plans, and defined contribution plans. Mark holds the Chartered Retirement Planning Coordinator (CRPC®) designation; FINRA Series 7, 31, and 66 licenses; and Texas life and health insurance license.

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