Have you been paying close attention to the SECURE Act 2.0? If so, you know that Congress has written new laws to expand retirement plan coverage for millions of Americans. While certain sections of SECURE Act 2.0 are already in effect, Section 603—along with many others—will take effect on January 1, 2024.
This means that 401(k) and 403(b) plan providers and product leaders have a tight turnaround to stay compliant. It’s a race against time, but with proper planning, you can beat the clock. In this post, we break down Section 603 of SECURE Act 2.0 and the steps 401(k) and 403(b) plan providers should take to ensure compliance by the fast-approaching deadline.
The United States is facing a retirement crisis. Across all age groups, the average American has only $89,300 set aside for retirement. When you consider that the benchmark set by popular savings strategies like the 4% rule is $1.5 million, there’s due cause for concern.
To curb this trend and help more people prepare for retirement, Congress is updating the catch-up contribution rules in Section 603 of SECURE Act 2.0.
Under current law, retirement plan participants age 50 and older can make catch-up contributions to their 401(k), 403(b), or IRAs—but under Section 603, that’s about to change. According to Section 603, if a retirement plan participant wants to make a catch-up contribution—and they earn more than $145,000 per year—they will be required to make the contribution on a Roth tax basis. In other words, catch-up contributions for these individuals will no longer be eligible for pre-tax treatment in 2024.
The purpose of the provision is to create more opportunities for Americans to accelerate their savings in the years leading up to retirement. By imposing a Roth-based rule, Congress ensures that plan participants will be able to withdraw tax-free dollars when they retire, thereby strengthening their financial security.
While a glitch in Section 603 could inadvertently eliminate the ability for anyone to make catch-up contributions in 2024, Congress has told the U.S. Treasury that corrections are coming, so retirement plan providers should prepare to stay compliant with Section 603 as Congress intended.
Section 603 is effective beginning January 1, 2024, which means that 401(k) and 403(b) providers must be prepared to update policies for every single retirement plan participant age 50 or older who is making catch-up contributions and earns over $145,000. To ensure you are ready for the new requirements, here are some questions you should be asking yourself right now:
If you can’t keep up with Section 603, you risk noncompliance, which could result in harsh penalties, steep fines, or legal fees associated with disputing any penalties in court.
If you determine that you are among the plan providers affected by Section 603, here’s what you can do to stay prepared:
Naturally, updating contributions means you’ll have to exchange large volumes of data between you and plan providers. Since you need to look at every plan participant who is 50 or older and earns more than $145,000 per year, you’ll need to pull in data from HRIS and payroll systems, such as:
While this data can vary based on your current retirement plan, platform, or procedures in place, it should give you an idea of how complex the compliance process can be. Now that you know the different types of data, how will you transfer all of it?
When you’re updating retirement plans to stay compliant with Section 603 of SECURE Act 2.0, there are four ways to transfer data:
Manual data entry is the least expensive option in terms of upfront costs, but it puts undue burden on sponsor administrators and is prone to errors. Improperly tracking data could result in a failure to update retirement plans and expose you to Section 603 compliance regulations. Manual data entry is simply unreliable, time-consuming, and expensive.
Transferring SFTP and flat files could be easier than asking in-house developers to build custom, direct integrations—but transferring all of that sensitive retirement plan data has several drawbacks:
Custom integrations with HRIS and payroll systems offer the advantages of automatic, real-time data syncs, as well as read and write capabilities. However, they are also complex and expensive to build and maintain. Challenges of building custom integrations include:
Unified employment APIs combine the advantages of custom integrations with the simplicity and cost-effectiveness of off-the-shelf software. How do they work? A unified employment API aggregates connectivity to hundreds of HRIS and payroll systems—automatically, instantly, and with a single integration. This means that you can get all of the benefits of custom integrations without having to build and maintain them yourself.
Specific to Section 603, unified employment APIs can help you:
What are the detailed pros and cons of buying a unified employment API versus building integrations in-house? Find out here.
Remember, time is a crucial factor. To ensure you have a solution in place to comply with Section 603 by the deadline of January 1, 2024, we recommend:
With this implementation plan in place, you’ll be able to make the necessary adjustments before January 1, 2024.
Finch is a unified employment API that integrates with 200+ HRIS and payroll systems, allowing retirement plan providers to transfer critical data quickly and responsibly. With real-time access to employment data, retirement plan providers can automate contribution management and push changes directly to payroll.
The benefits of using Finch include:
As you keep close tabs on Section 603, understand that time is short and compliance is critical. With a unified employment API like Finch, you can automate all the necessary updates and stay compliant.
Talk to our sales team today to explore ways you can use Finch to ensure compliance with Section 603 of SECURE Act 2.0 and improve your customer experience overall.
In December 2022, Congress passed the SECURE Act 2.0, which builds on retirement savings regulations set forth by the original SECURE Act of 2019. Written to expand coverage and increase retirement savings for millions of Americans, SECURE Act 2.0 introduces some major changes to retirement plans nationwide.
Since certain sections of SECURE Act 2.0 are already in effect—and even more will go into effect soon—retirement plan providers must act swiftly to ensure compliance. In this post, we offer an overview of Section 125, the part-time employees clause, then compare four methods for becoming compliant, and finally recommend a timeline for fulfilling your obligations.
SECURE stands for Setting Every Community Up for Retirement Enhancement. Now in its second iteration, SECURE Act 2.0 is designed to help employers provide easier and more affordable retirement plans for their employees.
While some Americans are finding ways to save, the nation’s collective fear of not having enough money to retire is valid: The average retirement savings in the United States is only $65,000.
To address this concern and unburden the American worker, SECURE 2.0 is creating more accessible opportunities to save for retirement.
Signed into law in 2019, the SECURE Act mandates that employers allow long-term, part-time employees to participate in their 401(k) plans. The original legislation dictates that employees must have worked at least 1,000 hours in their first year or accumulated a minimum of 500 hours of service over three consecutive years.
SECURE Act 2.0, which passed in 2022, reduces the three-year rule to two years. It also stipulates that long-term, part-time employees must also be allowed to participate in 403(b) plans that are subject to ERISA.
The new provisions under Section 125 are effective for any plan starting after December 31, 2024, which means that 401(k) and 403(b) providers must soon put in place and test the technology they will need to automatically enroll long-term, part-time workers.
Failure to do so correctly and on time could result in stiff fines as well as the legal fees associated with disputing any penalties in court.
If you’re among the retirement plan providers affected by Section 125, your first step to preparing is to understand the legislation inside and out. Once you are confident that you know what is required of you, you need to determine how you are going to identify part-time employees, track how many hours they’ve worked, over what period, and auto-enroll those who qualify, as stipulated by Section 101.
By nature, this provision necessitates the regular sharing of large volumes of data between you and the employers who sponsor your plans, including sensitive personal identifiable information (PII) and payroll details for every participant. To transfer this data, which is largely stored in employers’ payroll systems and human resources information systems (HRIS), you can implement one of four approaches—some more seamless and effective than others:
Manual data entry has its benefits. It allows plan sponsors to stick with a data collection system that works for them, and it is almost always the least expensive option in terms of hard, upfront costs. That said, the potential downfall from manual data entry cannot be understated:
Secure file transfer protocol (SFTP) and flat files offer another way to transfer retirement plan data.
With SFTP, you can bulk transfer large files of data in tables (in the form of CSV, JSON, and XML files, for example) over a secure network. The benefits of SFTP methods are that they’re generally easier for most in-house developers to build compared to custom, direct integrations (more on those next). But there are also significant drawbacks:
This method is especially cumbersome when data syncs need to happen often, which will be the case for plan providers and plan sponsors who must comply with auto-enrollment and auto-contribution increase requirements.
A more sophisticated approach involves direct integrations with the HRIS and payroll systems that house the data you need to perform auto-enrollment and auto-contribution increase functions.
The beauty of direct integrations is that data syncs happen automatically and in real time, driving efficiencies for all parties, providing your customers with an optimally seamless experience, and giving you the peace of mind that you are always in compliance with Section 101.
Crucially, custom integrations can be built to provide read and write capabilities, which means you can also use them to automatically push changes back to HRIS and payroll systems. This is especially valuable when it comes to contribution management.
Custom integrations also present significant challenges:
To get all of the advantages of custom integrations without the cost or hassle of building them in-house, you can turn to a unified employment API, which aggregates connectivity to many HRIS and payroll systems at once with a single integration. A unified employment API does the hard work of building and maintaining the integrations, and standardizing and abstracting all incoming data, so your team doesn’t have to. They are infinitely more efficient than custom integrations, so you can get to market faster and, ultimately, at less cost.
To ensure you have a solution in place to comply with Section 125 by the deadline, we recommend:
As you prepare for SECURE Act 2.0 to come into effect, don’t lose sight of the fact that it will take time to prepare to be compliant with Section 125. The least risky way to ensure compliance—not to mention the most time- and cost-effective solution—is to integrate with a unified employment API like Finch.
Finch does the hard work of integrating with HRIS and payroll providers to facilitate the secure, permissioned flow of critical business data. Our dynamic, unified employment API offers:
Talk to our sales team today to explore ways you can use Finch to ensure compliance with Section 125 of SECURE 2.0 and improve your customer experience overall.
In December 2022, Congress passed the SECURE Act 2.0, which builds on retirement savings regulations set forth by the original SECURE Act of 2019. Written to expand coverage and increase retirement savings for millions of Americans, SECURE Act 2.0 introduces some major changes to retirement plans nationwide.
Since certain sections of SECURE Act 2.0 are already in effect—and even more will go into effect soon—retirement plan providers must act swiftly to ensure compliance. In this post, we offer an overview of Section 101, the automatic enrollment and increases clause, then compare four methods for becoming compliant, and finally recommend a timeline for fulfilling your obligations.
SECURE stands for Setting Every Community Up for Retirement Enhancement. Now in its second iteration, SECURE Act 2.0 is designed to help employers provide easier and more affordable retirement plans for their employees.
While some Americans are finding ways to save, the nation’s collective fear of not having enough money to retire is valid: The average retirement savings in the United States is only $65,000.
To address this concern and unburden the American worker, SECURE 2.0 is creating more accessible opportunities to save for retirement.
One of the primary reasons so few Americans have sufficient retirement savings is because, even when employers do sponsor plans, many employees don't take the steps necessary to enroll. To address this problem, Section 101 of SECURE 2.0 requires all new employer-sponsored 401(k) and 403(b) plans adopted after December 29, 2022, to automatically enroll employees at an amount equal to at least 3% of the employee’s pay but not more than 10%.
Of course, Section 101 stipulates that employees have the right to opt out of participation, but the small friction of doing so is usually enough to keep many employees enrolled. In fact, studies demonstrate that automatic enrollment increases employee participation across the board, particularly among Black, Latinx, and lower-wage employees. Additionally, Fidelity Investments found that, among its clients, 90% of auto-enrolled employees stay enrolled in their plans.
In addition to auto-enrollment, Section 101 requires that each participant's contribution amount be automatically increased by 1% each year until it reaches at least 10%, but not more than 15%. The legislation does allow exceptions to both of these requirements for small businesses with 10 or fewer employees, new businesses that have been operating for less than three years, church plans, and governmental plans, but most 401(k) and 403(b) plan providers should anticipate that most of their new plans will ultimately be affected.
Section 101 is effective beginning January 1, 2025, which means that 401(k) and 403(b) providers must soon put in place and test the technology they will need to automatically enroll and increase the contributions of millions of participants. Failure to do so correctly and on time could result in noncompliance, stiff fines, and legal fees associated with disputing any penalties in court.
If you are among the plan providers affected by Section 101, your first step to preparing is to understand the legislation inside and out. Once you are confident that you know what is required of you, you need to determine how you are going to auto-enroll participants in the years ahead.
By nature, auto-enrollment and contribution increases necessitate the regular sharing of large volumes of data between you and the employers who sponsor your plans, including sensitive personal identifiable information (PII) and payroll details for every participant. To transfer this data, which is largely stored in employers’ payroll systems and human resources information systems (HRIS), you can implement one of four approaches—some more seamless and effective than others:
Manual data entry can have its benefits. It allows plan sponsors to stick with a data collection system that works for them and it is almost always the least expensive option in terms of hard, upfront costs. That said, the potential downfall from manual data entry cannot be understated.
Secure file transfer protocol (SFTP) and flat files offer another way to transfer retirement plan data.
With SFTP, you can bulk transfer large files of data in tables (in the form of CSV, JSON, and XML files, for example) over a secure network. The benefits of SFTP methods are that they’re generally easier for most in-house developers to build compared to custom, direct integrations (more on those next). But there are also significant drawbacks:
This method is especially cumbersome when data syncs need to happen often and regularly, which will be the case for plan providers and plan sponsors who need to comply with auto-enrollment and auto-contribution increase requirements.
A more sophisticated approach involves direct integrations with the HRIS and payroll systems that house the data you need to perform auto-enrollment and auto-contribution increase functions.
The beauty of direct integrations is that data syncs happen automatically and in real time, driving efficiencies for all parties, providing your customers with an optimally seamless experience, and giving you the peace of mind that you are always in compliance with Section 101. Crucially, custom integrations can be built to provide read and write capabilities, which means you can also use them to automatically push changes back to HRIS and payroll systems. This is especially valuable when it comes to contribution management.
Custom integrations also present significant challenges:
To get all of the advantages of custom integrations without the cost or hassle of building them in-house, you can turn to a unified employment API, which aggregates connectivity to many HRIS and payroll systems at once with a single integration. A unified employment API does the hard work of building and maintaining the integrations, and standardizing and abstracting all incoming data, so your team doesn’t have to. They are infinitely more efficient than custom integrations, so you can get to market faster and, ultimately, at less cost.
To ensure you have a solution in place to comply with Section 101 by the deadline, we recommend:
As you prepare for SECURE Act 2.0 to come into effect, don’t lose sight of the fact that it will take time to prepare to be compliant with Section 101. The least risky way to ensure compliance—not to mention the most time- and cost-effective solution—is to integrate with a unified employment API like Finch.
Finch does the hard work of integrating with HRIS and payroll providers to facilitate the secure, permissioned flow of critical business data. Our dynamic, unified employment API offers:
Talk to our sales team today to explore ways you can use Finch to ensure compliance with Section 101 of SECURE 2.0 and improve your customer experience overall.
In December 2022, Congress passed the SECURE Act 2.0, which builds on retirement savings regulations set forth by the original SECURE Act of 2019. Written to expand coverage and increase retirement savings for millions of Americans, SECURE Act 2.0 introduces some major changes to retirement plans nationwide. Since certain sections of SECURE Act 2.0 are already in effect—and even more will go into effect soon—retirement plan providers must act swiftly to ensure compliance.
In this post, we’ll cover what SECURE Act 2.0 is, why it was enacted, and a timeline detailing the provisions that go into effect by the end of 2023.
SECURE stands for Setting Every Community Up for Retirement Enhancement. Now in its second iteration, SECURE Act 2.0 is designed to help employers provide easier and more affordable retirement plans for their employees.
While there are dozens of new rules and regulations to consider, here is a snapshot of provisions most pertinent to 401(k) and 403(b) plan providers:
According to a 2021 report by the National Institute on Retirement Security,
While some Americans are finding ways to save, the nation’s collective fear of not having enough money to retire is valid: the average retirement savings in the United States is only $65,000.
To address these concerns and unburden the American worker, SECURE 2.0 is creating easier, more accessible opportunities to save for retirement.
Let’s take a look at some of the provisions that go into effect at the end of the year.
While many of the rules and regulations set forth by SECURE 2.0 took effect on the day the legislation was signed, deadlines for others are quickly approaching. It’s a race against time to stay compliant, and retirement plan providers would be smart to start preparing now.
Here’s a complete breakdown of every SECURE 2.0 provision that will take effect by January 1, 2024.
Section 108: Indexing IRA catch-up limit
Section 108 increases the limit on IRA contributions by $1,000 (not indexed) for individuals aged 50 and older. Section 108 is effective for taxable years beginning after December 31, 2023.
Section 110: Treatment of student loan payments as elective deferrals for purposes of matching contributions
Section 110 allows employers to treat qualified student loan payments (QSLPs) as elective deferrals for the purposes of matching contributions. This means that employers can make matching contributions to employees' retirement accounts based on the amount of money that employees pay toward their student loans.
Section 110 is effective for contributions made for plan years beginning after December 31, 2023.
Section 115: Withdrawals for certain emergency expenses
Section 115 allows participants in retirement plans to make penalty-free withdrawals for emergency expenses. To be eligible, the expense must be an unforeseen or immediate financial need relating to necessary personal or family emergency expenses. Participants can withdraw up to $1,000 per year from their retirement plan for a qualified emergency expense. The withdrawal must be repaid within three years. If the withdrawal is not repaid within three years, the participant will be subject to a 10% penalty tax.
Section 115 is effective for distributions made after December 31, 2023.
Section 116: Allow additional nonelective contributions to SIMPLE plans
Section 116 says that employers with SIMPLE plans must contribute 2% of employee compensation or 3% of employee elective deferral contributions. Employers are allowed to make additional contributions up to 10% of compensation or $5,000, whichever is less.
Section 116 is effective for taxable years beginning after December 31, 2023.
Section 117: Contribution limit for SIMPLE plans
Under current law, the annual contribution limit for a SIMPLE IRA is $14,000. For employers with 25 or fewer employees, Section 117 increases the contribution limit by 10% in the first year of implementation. Employers with 26 to 100 employees can offer higher contribution limits if they provide a 4% matching contribution or a 3% employer contribution.
Section 117 is effective for taxable years beginning after December 31, 2023.
Section 121: Starter 401(k) plans for employers with no retirement plan
Section 121 allows employers without a retirement plan to offer a starter 401(k) plan. Employees are automatically enrolled at 3 to 15% of their salary, with a $6,000 annual contribution limit and a $1,000 catch-up contribution for those over 50.
Section 121 is effective for plan years beginning after December 31, 2023.
Section 126: Special rules for certain distributions from long-term qualified tuition programs to Roth IRAs
Section 126 allows 529 plan holders to transfer up to $35,000 to a Roth IRA, tax- and penalty-free, if the 529 account has been open for more than 15 years.
Section 126 is effective with respect to distributions after December 31, 2023.
Section 304: Updating dollar limit for mandatory distributions
Under current law, employers can transfer former employees' retirement accounts from a workplace retirement plan into an IRA if the balance is between $1,000 and $5,000. Section 304 increases this limit to $7,000.
Section 304 is effective for distributions made after December 31, 2023.
Section 310: Application of top-heavy rules to defined contribution plans covering excludable employees
Under current law, qualified retirement plans must pass the top-heavy test. Section 310 allows employers to perform the top-heavy test separately on non-excludable and excludable employees. This removes the financial incentive to exclude employees from the 401(k) plan, increasing retirement plan coverage to more workers.
Section 310 is effective for plan years beginning after December 31, 2023.
Section 314: Penalty-free withdrawal from retirement plans for individual cases of domestic abuse
Section 314 allows domestic abuse survivors to withdraw up to $10,000 from their retirement plans without penalty. Participants can repay the money over three years, and they will be refunded for taxes paid on any repaid amounts.
Section 314 is effective for distributions made after December 31, 2023.
Section 315: Reform of family attribution rule
Section 315 updates two stock attribution rules. The first update removes the inequity between spouses in both community property and separate property states. The second update modifies the attribution of stock between parents and minor children.
Section 315 is effective for plan years beginning after December 31, 2023.
Section 316: Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date
Under current law, employers can amend retirement plans only in the year in which the plan was effected. Section 316 allows employers to amend retirement plans by the due date of their tax return.
Section 316 is effective for plan years beginning after December 31, 2023.
Section 323: Clarification of substantially equal periodic payment rule
Section 323 ensures that the 10% early withdrawal penalty does not apply to substantially equal periodic payments (SEPPs) from retirement accounts, even if the account is rolled over, exchanged, or converted to an annuity.
Section 323 is effective after December 31, 2023.
Section 325: Roth plan distribution rules
Under current law, required minimum distributions (RMDs) are not required for Roth IRAs until after the owner dies. However, RMDs are required for Roth accounts in employer retirement plans, such as 401(k) plans, while the owner is still alive. Section 325 eliminates the RMD requirement for Roth accounts in employer plans. This means that owners of Roth accounts in employer plans will no longer have to take RMDs while they are still alive.
Section 325 is effective for taxable years beginning after December 31, 2023.
Section 327: Surviving spouse election to be treated as employee
Section 327 allows a surviving spouse to elect to be treated as the deceased employee for required minimum distribution (RMD) purposes. This means that the surviving spouse can take RMDs based on the deceased employee's age, rather than their own.
Section 327 is effective for calendar years beginning after December 31, 2023.
Section 332: Employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year
Section 332 allows an employer to replace a SIMPLE IRA plan with a SIMPLE 401(k) plan or other 401(k) plan that requires mandatory employer contributions.
Section 332 is effective for plan years beginning after December 31, 2023.
Section 343: Defined benefit annual funding notices
Section 343 aims to define benefit pension plan funding issues more clearly on a plan’s annual funding notice.
Section 343 is effective for plan years beginning after December 31, 2023.
Section 350: Safe harbor for corrections of employee elective deferral failures
Section 350 extends the safe harbor for correcting errors in automatic enrollment and automatic escalation features in retirement plans. Employers have nine and a half months after the end of the plan year to correct errors without penalty.
Section 350 is effective for errors after December 31, 2023.
Section 602: Hardship withdrawal rules for 403(b) plans
Under current law, 401(k) and 403(b) plans have different hardship distribution rules. 401(k) plans allow for all amounts to be distributed, while 403(b) plans only allow for employee contributions to be distributed. Section 602 conforms the 403(b) rules to the 401(k) rules.
Section 602 is effective for plan years beginning after December 31, 2023.
Section 603: Elective deferrals generally limited to regular contribution limit
Under current law, catch-up contributions can be made on a pre-tax or Roth basis. Section 603 requires all catch-up contributions to be made on a Roth tax basis, except for employees with compensation of $145,000 or less.
Section 603 is effective for taxable years beginning after December 31, 2023.
As you prepare for SECURE Act 2.0 to come into effect, don’t lose sight of the fact that it will take time to prepare to be compliant.
You can get started today by reading our overview of Section 101, the automatic enrollment and increases clause. In this post, you’ll discover four methods for becoming compliant as well as a recommended timeline for fulfilling your obligations.
In the coming days, we’ll dive into Sections 125 and 603 in greater depth, offering insight into what your obligations are and how you can become compliant before the relevant deadlines. Stay tuned!
With the passage of the SECURE Act 2.0, automatically enrolling employees in sponsored retirement plans—and automatically increasing their contributions—is now a legal imperative. In response, retirement plan providers are implementing API technology to quickly and easily auto-enroll 401(k) and 403(b)participants and meet the new requirements.
In December 2022, the Securing a Strong Retirement Act (SECURE Act 2.0) was signed into law. Among the provisions outlined by SECURE 2.0 are new requirements for automatic plan enrollment and contribution escalation. Effective for plan years after December 31, 2024, they compel retirement plan providers to automatically enroll employees upon eligibility in new 401(k) and 403(b) plans and automatically increase the contributions of enrolled employees to that plan every year.
While these updates are exciting from a participation standpoint, the new requirements also come with the potential to create incredible administrative burdens especially in cases where employers are rapidly growing their workforce. In response, innovative retirement plan providers are implementing API solutions that integrate with employers’ HR information systems and payroll systems to ensure seamless SECURE 2.0 compliance. In this article, we explore the SECURE Act 2.0’s auto-enrollment and auto-escalation requirements plus the API technology that retirement plan providers are turning to make true automation a reality.
Building on the work of the Setting Every Community Up for Retirement Enhancement Act of 2019, SECURE Act 2.0 lays out widespread changes to the U.S. retirement system. The act is intended to make it more affordable for employers to sponsor retirement savings plans, and easier and more attractive for employees to participate.
The provisions of SECURE Act 2.0 include but aren’t limited to:
In total, the plan details dozens of new rules and regulations. Retirement plan providers as well as employers should consult qualified legal counsel to understand the full extent of the impact of the law on their operations.
One of the most broadly impactful provisions of SECURE 2.0 is detailed under Section 101 of the law, which stipulates that new 401(k) and 403(b) plans must now automatically enroll employees upon eligibility. According to a summary issued by the Senate Committee on Finance, the decision to require auto-enrollment a matter of financial equity:
“One of the main reasons many Americans reach retirement age with little or no savings is that too few workers are offered an opportunity to save for retirement through their employers. However, even for those employees who are offered a retirement plan at work, many do not participate. But automatic enrollment in 401(k) plans…significantly increases participation. Since first defined and approved by the Treasury Department in 1998, automatic enrollment has boosted participation by eligible employees generally, and particularly for Black, Latinx, and lower-wage employees.”
Per SECURE 2.0, employees must be initially enrolled at a minimum of 3% of their gross pay but not more than 10%. Plans are also required to increase the distribution of enrolled employees each year by 1% until contribution reaches at least 10%, but not more than 15%.
Exceptions to the provisions include all current 401(k) and 403(b) plans, which are grandfathered into pre-SECURE 2.0 rules, as well as businesses with 10 or fewer employees, businesses under 3 years old, church plans, and government plans. Employees also have the right to opt out of enrollment or distribution escalation at any time.
Automatically enrolling all employees to a retirement plan upon eligibility is a significant undertaking. By SECURE 2.0’s definition, “automated” enrollment simply means enrolling those employees on an opt-out rather than an opt-in basis.
But that definition of automated doesn’t necessarily translate to a simpler, less manual process. A plan still needs to be notified of newly eligible employees and provided with the employee census data and payroll authorization it needs to process enrollment and manage recurring plan deductions. Without the right technology in place, employers and plans are forced to communicate all of this information by email, phone, spreadsheet, or secure file transfer. Not only is the back-and-forth time consuming, it increases the risk of error and noncompliance with SECURE 2.0’s provisions, and the potential of penalties and fine.. The hassle and risk only compounds in cases where employers are rapidly adding new employees.
To avoid this drain of resources and to eliminate the risk of SECURE 2.0 noncompliance, true automation is critical. Retirement plan providers are now turning to API integrations with employers’ HR information and payroll systems to eliminate the manual steps historically needed to enroll employees and manage their deductions on an ongoing basis.
With an API integration, retirement plan providers have a direct, permissioned data connection to employment systems of record. This allows plans and employers to quickly and seamlessly exchange the data needed to enroll employees in 401(k) and 403(b) plans and manage their retirement deductions. What’s more, these data exchanges can be triggered by events without manual intervention, which means no person has to shoulder the responsibility of ensuring newly eligible employees get enrolled. The API integration takes care of it automatically in the truest sense of the word.
Consider this example:
As a result, both the employer and the retirement plan provider save hours of administrative work and avoid delays to plan enrollment.
Retirement plan providers looking to enable HRIS and payroll system connectivity have a couple of options: build one-to-one integrations with all of the HRIS and payroll systems their customers use or partner with a turnkey, universal API that integrates with hundreds of HRIS and payroll systems at once.
Learn more about both approaches to HRIS and payroll integrations in our build vs. buy report.
The first approach offers plan providers ultimate control over their integration strategy but requires niche payroll expertise and a significant, ongoing investment of development resources. The second option turns over some of that control to a integrations partner but also comes with distinct advantages:
Finch makes it easy for retirement plan providers to integrate with 200+ HRIS and payroll systems with a single integration. Not only does our universal API enable the instant retrieval of real-time employee census data needed to automate 401(k) and 403(b) enrollment, it also allows plan providers to push changes directly to payroll. Using Finch’s Benefits endpoint, plan providers can initiate and manage pre-tax, post-tax, recurring, and one-time payroll deductions as a dollar amount or percentage of employees’ gross pay, ensuring easy compliance with the SECURE Act 2.0’s auto-escalation clause.
Meanwhile, the employer sponsoring the plan doesn’t have to lift a finger to upload deduction files or manually enter changes, saving them from hours of ongoing administrative work and avoiding countless potential human errors and potential fines.
Learn more about how retirement plan providers use Finch to build best-in-class customer experiences.
The auto-enrollment and auto-escalation provisions of the SECURE Act 2.0 will drive retirement plan participation, but not without potential challenges and hurdles. Luckily, retirement plan providers who want to stay compliant while avoiding hassles and potential fines can leverage Finch’s universal HRIS and payroll system API to make true auto-enrollment and contributions management simple and secure. Register for a free test account to explore how to leverage Finch’s HRIS and payroll integrations today.