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An Easier Way to Boost Employee Retirement Benefits: SECURE 2.0 Act Explained
The SECURE 2.0 Act simplifies offering retirement benefits and makes saving for retirement easier. The problem? Most employers don’t know about it.
If you’ve ever wished offering a retirement plan were simpler or that more of your employees actually participated, the SECURE 2.0 Act is a big step in the right direction.
This law, passed at the end of 2022, makes saving for retirement easier for workers and more affordable for small businesses to offer benefits. It gives employers new tax breaks, simpler rules, and fresh ways to help employees build real financial security.
Let’s break down what this means for you and your employees.
Mandatory Automatic Enrollment (with Opt Out Option)
As of January 1, 2025, new 401(k) and 403(b) retirement plans require employees to be automatically enrolled when they become eligible (unless they choose to opt out).
- Contributions will start at 3%–10% of earnings and go up slightly each year until they reach 10%–15%.
- Very small businesses (10 or fewer employees) and new businesses (less than 3 years old) are exempt.
Why this matters:
Automatic enrollment helps employees save without having to fill out a form, and most people stay in once they are enrolled. Employers see better participation, happier workers, and stronger long-term retention.
Bigger Tax Credits for Small Employers
The SECURE 2.0 Act makes it much cheaper for small businesses to start offering retirement benefits.
- Employers with 50 or fewer employees can now get a 100% tax credit (up to $5,000 a year for three years) to cover plan setup costs.
- There is also a new credit for employer contributions, up to $1,000 per employee, phased out over five years.
Why this matters:
Starting a retirement plan used to feel out of reach for small employers. Now, the government will help foot much of the bill, making it easier to attract and keep great employees.
Federal Matching for Lower-Income Workers
The old Saver’s Credit has been replaced with something even better: the Saver’s Match. Starting January 1, 2027, the government will directly deposit a 50% match (up to $2,000) into eligible employees’ retirement accounts.
Why this matters:
This federal match helps lower-income employees grow their savings faster but won’t cost you, the employer, a dime.
Easier Group Plans for Small and Nonprofit Employers
Prior to SECURE 2.0, small businesses and nonprofits were only allowed to participate in a Multiple Employer Plan (MEP) if they shared a “common interest,” which excluded unrelated small employers who simply wanted to share plan costs. With the SECURE Act of 2019, Pooled Employer Plans (PEPs) eliminated the “commonality” requirement so that unrelated employers could participate. However, this idea was not widely used – and those that did use it were primarily private-sector businesses.
With the SECURE 2.0 Act, small businesses and nonprofits with a 403(b) plan can now team up to offer group retirement benefits through MEPs or PEPs.
Why this matters:
By joining a pooled plan, smaller employers can access lower costs, stronger investments, and professional oversight without having to manage everything alone.
What is a Pooled Employer Plan (PEP)?
This is a plan that allows multiple employers to join one retirement plan but does not require there to be a shared business connection. They are run by a provider who handles most fiduciary and administrative duties to make it easier and more affordable for small employers to offer retirement options.
What is a Multiple Employer Plan (MEP)?
This is a plan that allows multiple employers to join one retirement plan with the caveat that they must share a business connection. These connections could be same industry or trade association membership, same geographic connection, common ownership or control, or they all outsource human resources to the same Professional Employer Organization (PEO).
What is a 403(b) plan?
This is a tax-sheltered retirement plan available to employees of non-profit organizations, public schools, and churches.
More Flexibility for Older Workers
Two major updates within the Act make it easier for older employees to manage retirement timing:
- The Required Minimum Distribution (RMD) age rose from 72 to 73 in 2023 and will reach 75 in 2033.
- Workers aged 60–63 can make catch-up contributions of up to $10,000 (as of 2025).
Why this matters:
These changes give older workers more time and opportunity to grow their savings, which also helps employers support employees who are planning for later-life transitions.
What is a Required Minimum Distribution?
This is the minimum amount of money a person must withdraw from their retirement account each year once they reach a certain age, as determined by the IRS. Because the money in these accounts grows tax-deferred, the government eventually requires withdrawals so it can collect income taxes on that money.
Student Loan Payments Can Earn a 401(k) Match
As of 2024, employers can match an employee’s student loan payments just like retirement contributions.
For example, let’s say your employee earns $5,000/month. They put 3% of their pay towards their qualified student loan payment, making it a $150/month loan payment. Your company normally offers a 100% match on up to 3% of the employee’s pay. This means you can contribute that same $150 into the employee’s 401(k), even though the employee didn’t put their own money directly into the plan.
Why this matters:
This is huge for young professionals. Even if an employee is paying off student loans and can’t afford to contribute to their 401(k), they’ll still get an employer match. It’s an incredible recruiting and retention tool for businesses competing for younger talent.
New Credits for Military Spouses and Small Employers
If your business has 100 or fewer employees, you can claim up to $500 per military spouse per year (up to three years per individual) if you allow military spouses to participate in the retirement plan right away (no waiting period) and ensure they are 100% vested immediately in any employer contributions.
The credit includes $200 for making the spouse immediately eligible and vested, as well as 100% of employer contributions made on behalf of that spouse, up to $300 per year. This plan credit is retroactive to tax years beginning January 1, 2020.
Why this matters:
It encourages fair treatment for military families who often lose access to employer-sponsored retirement plans when they have to move locations (and change jobs), demonstrates support for service members’ families, and gives small employers another way to earn tax savings.
Incentives to Encourage Enrollment
Employers can now offer small, non-cash rewards like low-value gift cards (not to exceed $250 in total value) to encourage employees to sign up for the company’s 401(k) or 403(b) plan. Keep in mind the incentive cannot be funded by plan assets.
Why this matters:
A $25 gift card might seem small, but it’s an easy way to motivate people to proactively enroll in the plan. For example, you can market the incentive with, “Enroll in the 401(k) and receive a $25 gift card!” Once they complete enrollment, they qualify for the incentive.
Easier Access to Emergency Savings
Sometimes employees are apprehensive to put away money for retirement because they won’t be able to access it for decades. Through the SECURE 2.0 Act, employees can now withdraw up to $1,000 a year for emergencies without penalties, as long as they repay it within three years.
In addition, employers can offer a linked emergency savings account (ESA) up to $2,500 for non-highly compensated employees (generally those earning less than $150,000/year) that can be accessed for emergencies without penalizing the employee.
For example, an employee enrolled in the company 401(k) automatically contributes 3% of their paycheck to retirement savings and 1% to a linked emergency savings account. If their car breaks down, they can withdraw funds from the ESA instantly without touching their 401(k) or paying penalties.
Why this matters:
In most cases, this helps put employees at ease when setting money aside for retirement, which helps them feel financially secure, less stressed, and more productive. This flexibility can also reduce hardship withdrawals and improve morale.
A Simple “Starter 401(k)” Option
As of 2024, small employers without a retirement plan can set up a safe harbor 403(b) or Starter 401(k) defined contribution plan. This is a new, simplified retirement plan that makes it easier and cheaper for employers to get employees saving for retirement, where:
- All employees are automatically enrolled;
- Contribution rate is 3%–15% of pay (you, the employer, choose the default rate);
- Employees can opt out or change their contribution anytime;
- Contribution limits match IRA limits, including catch-up contributions for those eligible;
- Employers can choose not to match contributions or to provide safe harbor contributions; and
- There is less paperwork and fewer fiduciary responsibilities than a traditional 401(k).
- Why this matters:
This is a low-cost, low-hassle way to finally offer a retirement benefit, even if you’ve never had one before.
What are Safe Harbor Contributions?
To simplify 401(k) plan administration and to avoid annual compliance tests (which ensure highly paid employees aren’t getting disproportionately large benefits compared to lower-paid employees), employers can set up safe harbor contributions. Provisions to safe harbor contributions include:
- Automatic employe contributions to the 401(k) (even if the employee does not contribute to the plan) that are fully vested, meaning employees own the money right away without having to work a certain number of years to receive it.
- Contributions could be 3% of each eligible employee’s salary, or 100% of the first 3% of employee contributions, plus 50% of the next 2% for a total possible 4% match.
Setting up safe harbor contributions makes retirement plans simpler for employers and, oftentimes, more rewarding for employees, while ensuring compliance with IRS rules.
Easier Rules for SIMPLE and SEP Plans
The Secure 2.0 Act made several changes that simplify and improve SIMPLE (Savings Incentive Match Plan for Employees) and SEP (Simplified Employee Pension) retirement plans, making them easier for small businesses to offer and for employees to save. Those changes include:
- Contribution limits for SIMPLE Plans increased by 10% for small employers with 25 or fewer employees. Employers can also add up to 10% of pay or an additional $5,000 to give employees more retirement savings potential.
- Part-time employees can now be eligible for a SIMPLE or SEP participation after just two years of employment (previously it was three years).
- SEP plans can now include domestic workers like nannies or caregivers.
Why this matters:
More flexibility and higher contribution limits mean you can tailor benefits to meet your team’s needs.
New Lifetime Income Options
The law removes old restrictions that made it hard to include annuity options, which are plans that provide guaranteed income for life. For example, the Qualified Longevity Annuity Contracts (QLACs) – which are a special type of deferred annuity that starts paying income later in life, often after age 80 – raised the purchase limit from $145,000 to $200,000 (2023) and eliminated the 25% cap that limited how much of an account balance could go into a QLAC.
In addition, employees can now split investments between annuity payments and other funds without being penalized. And the rules were simplified for required minimum distributions on annuity contracts to avoid unnecessary withdrawals and penalties.
Why this matters:
Employees can choose more predictable, lifelong income options for retirement, similar to traditional pensions.
Simpler Administration and Fewer Headaches
SECURE 2.0 also makes plan administration easier for employers, in that:
- You can fix more plan mistakes internally without IRS approval.
- The Department of Labor will create a “Lost and Found” database to help workers locate old accounts.
- The threshold for automatic rollovers increases to $7,000 (up from $5,000).
- Fewer notices are required for employees who aren’t enrolled in your plan.
Why this matters:
Less paperwork, fewer errors, and easier compliance make life simpler for business owners and HR teams.
Transparency and Ongoing Improvements
Federal agencies are now reviewing retirement plan reporting and fee rules to improve clarity and fairness. These updates will continue rolling out in the coming years that will benefit participants and their beneficiaries.
Final Thoughts on SECURE 2.0 Act
The SECURE 2.0 Act isn’t just about helping employees retire; it’s about making defined benefit plans that work better for everyone, especially when social security feels precarious. This Act helps small and mid-sized businesses compete for talent, rewards those who support their employees’ futures, and gives workers more confidence and flexibility with their savings.
Whether you’re offering a new retirement plan, improving an existing one, or just exploring your options, now is the time to act. Please contact your Stratus HR rep for more information or questions about tax documents.
Not a current Stratus HR client? Book a free consultation and our team will answer shortly.
Sources:
https://www.irs.gov/retirement-plans/irc-403b-tax-sheltered-annuity-plans