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Changes Are Coming For The U.S. Retirement System

In late December 2022, government officials announced changes coming to the U.S. retirement system. A collection of retirement-related provisions known as “Secure 2.0” includes a 4,100-page, $1.7 trillion spending that will fund the government for the 2023 fiscal year. The Secure Act 2.0 would require employers with 401(k) or 403(b) plans to automatically enroll all new, eligible employees at a 3% contribution rate, increasing by 1% each year until it reaches 10%.

The current law allows individuals at least 50 years old to put an extra $6,500 annually in their 401(k). Secure 2.0 would increase the limit to $10,000 starting in 2025 for individuals ages 60 to 63. In addition, the following would also change:

  • Catch-up amounts would be indexed for inflation 
  • All catch-up contributions will be subject to Roth treatment (not pre-tax) except for workers who earn $145,000 or less

These provisions are intended to build on improvements to the retirement system that were implemented under the 2019 Secure Act. The following are provisions for the new law:

  • Requires automatic 401(k) enrollment
  • Increases the age when required minimum distribution (RMD) would need to start
  • Creates bigger “catch-up” contributions for older retirement savers
  • Broadens employer 401(k) match options
  • Improves worker access to emergency savings 
  • Increase part-time workers’ access to retirement accounts
  • Boosts the contribution amount of a qualified longevity annuity contract
  • Changes the required minimum distribution amount
  • Broadens usage for unused college savings money

In addition to all these benefits, it also includes a variety of incentives for small businesses to set up retirement savings plans for their employees, encourages individuals to set aside long-term savings, and makes it easier for annuities to be an income option for retirees.

What This Means For Small Business Owners

These provisions are intended to help employees save more for their retirement. Whether you want to attract more employees or find ways to retain current employees, providing your employees with a retirement plan is critical. When you implement a retirement plan, you show your employees that they are critical to your company’s success. Partnering with a professional employer organization (PEO) like GMS will help you and your business with 401(k) plans by doing the following:

  • Cut costs and reduce stress
  • Save time
  • Offer benefits your employees need the most

Contact GMS today to learn more.