The United States has a retirement problem. Only 55 percent of employees participate in workplace retirement programs, setting themselves up for potential financial insecurity later in life. In response, Congress passed sweeping legislation known as the Setting Every Community Up for Retirement Enhancement (SECURE) Act in late 2019.
The goal of the SECURE 2.0 Act was simple: enroll more Americans in retirement plans by requiring businesses to offer retirement saving plans to their employees. However, implementing the provisions of the SECURE Act — especially with the most recent updates, known as the SECURE 2.0 Act passed on December 29, 2022 — can be a bit confusing for businesses and employees. Many businesses have been especially alarmed regarding the audit provision of the act; however, as we’ll explain, it’s not as frightening as it sounds.
The Secure 2.0 Act does not apply to every business. Some businesses are exempt from its requirements, including:
- Government entities;
- Businesses in existence for fewer than three years;
- Businesses with fewer than 10 employees; and
- Those enrolled in SIMPLE 401(k) plans
Some employees will be automatically enrolled in their employer’s 401(k) plan
The Secure 2.0 Act will require automatic enrollment as well as automatic contribution increases each year, depending on the design of the plan. Communication of these changes to employees will be critical, as employees will need to opt out if desired.
Since automatic enrollment and automatic contribution increases could come as a surprise to some employees, the Secure 2.0 Act requires a provision to allow withdrawals within 90 days of the first contribution without any penalties. This provision protects employees who may not realize they have been enrolled so they can get their money back penalty-free.
Automatic enrollment may present unique challenges for ag businesses
The SECURE 2.0 Act covers long-term, part-time workers. Prior to the SECURE 2.0 Act, the IRS defined long-term, part-time workers as individuals who have worked 500 hours per year for 3 consecutive years. Starting in 2025, employees only have to work 500 hours for 2 consecutive years to be eligible to participate in the plan. Beginning in 2025, these workers must be automatically enrolled in an employer retirement plan.
Ag operations that hire the same seasonal employees for harvest year after year could be severely impacted. If you have questions about how the SECURE 2.0 Act’s provisions may affect your business, contact us for assistance.
It will now be less costly for small businesses to establish employee retirement plans
Starting this year, businesses with 50 or fewer employees may have more cost-effective retirement plan options. Eligible businesses could qualify for a credit equal to 100 percent of the administrative costs to set up a retirement plan. This is an increase from the original SECURE Act, which only covered 50 percent of costs — and only up to $5,000 annually. To see if your business could benefit from the credit, reach out to your Grimbleby Coleman team.
Larger employers should expect an audit
Despite the media hubbub over the act’s audit provisions, the rules for audits have not changed. As always, once a business has 120 or more eligible participants, the plan is required to be audited. However, since the SECURE 2.0 Act will enroll more employees in retirement plans, the number of businesses requiring an audit will increase.
An audit will examine three main areas:
- Is the plan operating in compliance with Department of Labor and IRS regulations, as well as with plan-related documents?
- Is financial information being recorded properly on IRS Form 5500 and plan financial statements, including required disclosures?
- Is the business acting as a fiduciary? In other words, is the business putting the plan participants’ interests before their own?
Keep in mind that subsequent to a first audit, the plan must continue to be audited if it has 100 or more eligible participants.
We can help you prepare for SECURE 2.0 Act Provisions
Grimbleby Coleman can help you prepare for an audit of your retirement plan or help you prepare strong internal controls and clear documentation.
For general information on provision highlights, see our January article on What You Need to Know About the Newly Passed SECURE 2.0 Act.
Get in touch
Grimbleby Coleman provides clarity to businesses of all sizes regarding the Secure 2.0 Act. If you have questions about how the Act’s requirements will affect your business or if you need help preparing an audit, reach out to us. We’re ready to help impacted employers, and employees thrive through these changes.