401k Contributions

The SECURE 2.0 Act of 2022 introduced several updates to retirement savings plans, including a new provision (Section 109) that allows employees ages 60 to 63 to make higher catch-up contributions starting in 2025. This change is designed to help individuals boost retirement savings during the critical final years leading up to retirement.

In late 2022, President Biden signed the SECURE Act 2.0 into law as part of the Consolidated Appropriations Act of 2023. The legislation included comprehensive changes designed to improve access to retirement saving accounts and make it easier to grow individual retirement savings. While many of the updates targeted workers, there were also some designed to make starting and administering an employer sponsored retirement plan easier and less costly. One important provision was contained in Section 305, which calls for an expansion of the Self Correction Program (SCP) under the IRS Employee Plans Compliance Resolution System (EPCRS).

Employer-sponsored retirement plans are an essential benefit offering and tool for employees to fund retirement savings. The savings crisis has been in full focus over the last few months due to the SECURE Act 2.0. This legislation calls for several changes impacting plan administration, participant benefits, and even tax incentives for new plans. The gradual phase-in of required changes and updates has naturally been top of mind for many. This is especially true because of the time needed to update plan processes and procedures.

Americans depend on employer sponsored retirement plans such as 401(k), 403(b), and others to help fund retirement savings. The various features offered in these plans often make it easier to start and continue saving over the years. Unfortunately, 57 percent of workers still don’t have access to an employer-sponsored retirement plan which is a cause for concern. In fact, the reality is that many older Americans are outliving retirement savings creating an unexpected and unwanted situation. To address this issue, Congress is examining several different laws which would make plans more accessible and retirement funds easier to use.

The COVID-19 pandemic created significant financial challenges for many businesses, individuals, and families. In January 2020, the unemployment rate in Atlanta was 3.2% but by June it had more than doubled to 7.6%.  These numbers reflect how the fear of virus transmission and new government orders conspired to create adverse circumstances. While companies were busy adapting operations to find new ways to serve customers, individuals and families were re-assessing financial priorities to weather the storm.

Managing a benefit plan can be a challenging task. There are multiple rules and regulations which must be followed including those mandated by both the IRS and the Department of Labor (DOL). Many of these originated with the Employee Retirement Income Security Act of 1974 (ERISA) which was designed to provide a broad framework for how plans should function including rules on plan administration, participant access, annual audits, and more.

Many Atlanta businesses offer retirement plans as a benefit to employees to encourage savings and as a vehicle for the tax-free investment of contributions. These plans are one of the most effective means of encouraging participation and helping employees build a solid financial foundation for retirement. In fact, they are so effective that the Setting Every Community Up for Retirement (SECURE) Act implemented several changes to incentivize businesses to offer retirement plans. While offering a plan is essential to saving, plan sponsors should also maintain communications with participants to meet compliance requirements and to disburse important information on benefits.

On May 21, 2020, a new DOL Final Rule (the Rule) was approved which permits employers to post relevant disclosures online or deliver to employees through emails, as a default. This change is expected to make it easier and less costly for employers while making important information easily accessible for employees.

At the end of last year, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which made changes to retirement saving opportunities and benefits for employees and other individuals. There has been a significant concern for some time that American’s are not saving nearly enough to fund their retirement. This is attributed to limited access to retirement plans, plans that lack automatic enrollment, poor plan education, and other saving restrictions.

Retirement planning is an essential financial discipline that Atlanta area individuals need to focus on throughout their career. While there is no shortage of retirement saving approaches, very few are as effective and utilized as employer-based retirement plans. In fact, the U.S. Department of Labor (DOL) found that ERISA covered plans offer higher contribution limits, lower investment management costs, enhanced regulations such as financial reporting and disclosure requirements and automatic enrollment features. Unfortunately, many small businesses struggle to offer employees a plan because of the associated costs. Unfortunately, this leaves employees without a vital retirement savings tool. To address the situation, the DOL recently issued a new final rule which makes it easier for small businesses to participate in multiple employer plans (MEPs).