SECURE 2.0 Act Provisions for Staffing Companies

The SECURE 2.0 Act is aimed at helping taxpayers bolster their retirement savings and strengthen their long-term financial security. The bill includes provisions to make it easier for small businesses to offer retirement savings plans and provides benefits to offset costs associated with establishing one. Ultimately, the provisions will help employees build retirement savings that can last a lifetime.

The following are key provisions applicable to the staffing industry:

Expanded Roth contributions

Roth contributions are allowed for SIMPLE and SEP IRAs. Employer contributions and employee deferrals (if allowed) can be designated as Roth.

Increased catch-up contributions

Currently, individuals aged 50 or older are allowed to contribute additional funds to qualified retirement plans. Starting in 2025, individuals between the ages of 60 and 63 will be able to contribute the greater of $10,000 or 50 percent more than the catch-up contribution amount for 2024. Catch-up contributions will be indexed for inflation starting in 2025. IRA catch-up contributions will also be indexed for inflation starting in 2024 for those aged 50 or older.

Automatic enrollment for 401(k) plans

Starting in 2025, 401(k) plan participants are automatically enrolled in the plan once they are eligible. The requirements are:

1. Initial deferral contribution level of three percent of compensation
2. Each year, contributions increase one percent until it reaches 10%

Student loan matching program

Student loan payments can be treated as employee deferrals for purposes of employer match contributions. This provision is effective for plan years after Dec. 31, 2023.

529 Plan rollovers to Roth IRAs

Beginning in 2024, beneficiaries of 529 Plans may roll over up to $35,000 during their lifetime to a Roth IRA. The amount rolled over each year is limited by the contribution limit for IRAs. In addition, to be eligible, the 529 Plan must have been open for more than 15 years.

Additional 10 percent penalty exceptions

Taxpayers will be eligible to take up to $1,000 penalty-free, in the case of financial hardship, from a 401(k) plan or IRA. The taxpayer has the option to repay the distribution within three years. No further distributions will be permitted during the repayment period unless the distribution is paid in full. Taxpayers that are victims of domestic abuse are also allowed the lesser of $10,000 or 50 percent of their account balance without penalty. A similar three-year repayment period is available as well. Beginning in 2023, taxpayers diagnosed with a terminal illness will also be eligible to take distributions without the 10 percent penalty applying.

Part-time worker coverage

Long-term part-time workers were afforded the ability to participate in a 401(k) plan if they worked at least 500 hours per year with an employer for at least three consecutive years and had met the minimum age requirements (usually 21) under the former SECURE Act of 2019. SECURE Act 2.0 reduces the number of years to two and clarifies that 12-month years before 2021 are not taken into consideration for eligibility or vesting. The reduction in service requirement is effective for plan years beginning after December 31, 2024.