Secure 2.0, which Congress passed last year, contains a wide range of retirement provisions that benefit various parties. For example, employees may benefit from this legislation if employers utilize its provisions to provide new financial wellness programs, such as emergency savings accounts and Starter K plans.
Emergency Savings Accounts
An emergency savings account is fundamental to any financial wellness program. When an employer has many employees living paycheck to paycheck, an emergency savings account program can have a huge impact. Even a small investment in emergency savings can allow employees to avoid high-dollar payday loans and 401(k) plan loans when faced with unexpected expenses. Employers may even offer a financial incentive to employees to add to these savings accounts. In addition, features like automatic enrollment and contributions will make it easier for employees to participate in these accounts.
Employers likely will need to educate employees about emergency savings accounts and their value. While some employees may be on board from the start, others may need convincing. For instance, some employees recognize the importance of emergency savings but may prioritize other financial needs, and some employees may believe that they do not need emergency savings. Nevertheless, education by employers and their peers may lead to increased participation in the program.
Starter K Plans
Secure 2.0 also allows employers who have never had retirement plans for their employees to implement simplified 401(k) plans or “Starter K” plans. Employers are not required to contribute to these plans, and employees are automatically enrolled at three percent of their pay. These programs allow small businesses to avoid the hefty administrative costs of 401(k) plans while still allowing employees to save for retirement.
Starter K plans are particularly attractive and affordable in states requiring employers to offer retirement plans. They often are a better option for smaller employers than state-sponsored IRA plans. Furthermore, employers can improve their diversity, equity, and inclusion (DEI) efforts by offering Starter K plans. According to the American Retirement Association, a Starter K plan could result in 19 million more workers saving for retirement, with a 22% increase for Black and Hispanic workers.
Student Loan and 529 Benefits
Student loan debt disproportionately adversely affects women and members of the Black and LGBTQ communities. As a result, offering student loan repayment and 529 education savings benefits in Secure 2.0 also can further DEI efforts. Similarly, tying 401(k) participation to student loan repayment assistance also may assist employers with certain demographics of employees. Otherwise, individuals with student loan payments may be unable or unwilling to contribute to 401(k) plans out of a perceived financial inability to do so.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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