Micah Alsobrook, CPFA®, MBA
Retirement Plan Consultant
Introduction
As competition for talent intensifies in 2024, retirement plan benefits like 401(k) plans are increasingly considered a critical part of employee retention strategies. While salaries and other perks may initially attract employees, retirement plans that align with their long-term financial needs can potentially foster loyalty and engagement.
The SECURE 2.0 Act introduces several key updates to 401(k) plans, aiming to expand access to retirement savings and provide more flexibility for a diverse workforce. This article outlines some of these changes and how they could influence employee retention.
1. Automatic Enrollment: Encouraging Early Participation
Under SECURE 2.0, many new 401(k) plans are required to automatically enroll eligible employees at a contribution rate between 3% and 10%. This provision helps employees begin saving for retirement without needing to take action upon eligibility.
Potential Impact on Retention: Research suggests that automatic enrollment increases plan participation. While this feature may demonstrate a company’s commitment to employees' long-term financial health, the ultimate impact on retention would depend on various factors, including overall benefit packages and job satisfaction.
2. Minimum Distribution Age: Adjusting for Older Workers
The SECURE 2.0 Act increases the required minimum distribution (RMD) age, allowing individuals to delay withdrawals from their retirement accounts. The age increases from 72 to 73 in 2023 and will further rise to 75 by 2033.
Potential Impact on Retention: For older employees who may continue working past traditional retirement age, this provision may offer more flexibility in managing their retirement funds. However, the extent to which this flexibility influences retention may vary based on individual financial circumstances and career goals.
3. Part-Time Employee Eligibility: Expanding Access
Starting in 2025, part-time employees will become eligible to participate in 401(k) plans after two consecutive years of service, down from the previous three-year requirement under the SECURE Act of 2019.
Potential Impact on Retention: Providing access to retirement benefits for part-time employees may encourage participation, but the overall effect on employee retention will likely depend on how these benefits are integrated with other factors such as wage structure and job stability.
4. Emergency Access to Funds
Beginning in 2024, employees will have the option to make penalty-free withdrawals of up to $1,000 annually from their retirement accounts for emergencies. This feature could provide financial relief during difficult times.
Potential Impact on Retention: While this provision may reduce financial stress for employees, its direct influence on retention is uncertain. Offering access to emergency funds may support employees in times of need, but broader financial well-being initiatives and job satisfaction will likely play a larger role in long-term retention.
5. Small Financial Incentives for Participation
The SECURE 2.0 Act allows employers to offer small financial incentives, such as gift cards or bonuses, to encourage employee participation in retirement plans.
Potential Impact on Retention: These incentives could potentially drive greater engagement with retirement savings, though whether they significantly influence retention remains to be seen. Incentives may create short-term interest, but sustained retention may depend on broader organizational culture and benefits.
6. Roth Matching Contributions
Starting in 2024, employers can offer matching contributions to employees' 401(k) accounts on a Roth (after-tax) basis. Previously, matching contributions were only allowed on a pre-tax basis.
Potential Impact on Retention: Offering Roth matching contributions provides employees with additional tax-planning flexibility. This option may be appealing to certain employees, particularly younger workers, but the overall effect on retention will depend on individual preferences and financial planning strategies.
7. Student Loan Matching Contributions
Beginning in 2024, employers can match employees' student loan payments with contributions to their 401(k) plans, even if the employee is not directly contributing to the 401(k).
Potential Impact on Retention: This provision may be attractive to employees burdened by student debt, particularly younger employees who might otherwise prioritize debt repayment over retirement savings. While it could be a helpful tool in employee retention efforts, its effectiveness will vary based on individual circumstances and broader compensation strategies.
8. Catch-Up Contributions for High Earners
SECURE 2.0 mandates that employees aged 50 and older who earn more than $145,000 annually must make catch-up contributions on a Roth basis starting in 2024.
Potential Impact on Retention: High earners and older employees may find this change useful for tax planning, but the overall impact on retention is unclear. This provision primarily affects higher-income individuals, and other retirement plan features are likely to play a larger role in retention decisions.
9. Expanded Catch-Up Contributions for Older Workers
Beginning in 2025, employees aged 60 to 63 will be eligible to make larger catch-up contributions to their retirement plans. The limit will increase to the greater of $10,000 or 150% of the regular catch-up contribution amount.
Potential Impact on Retention: This may provide added value for older employees looking to maximize their retirement savings in the final years of their careers. Whether this provision directly influences retention may depend on how employers communicate the benefit and integrate it into broader compensation strategies.
10. Long-Term Care Insurance Funding
Starting in 2024, SECURE 2.0 allows employees to use up to $2,500 annually from their retirement savings to pay for long-term care insurance premiums without incurring a 10% penalty for early withdrawals.
Potential Impact on Retention: This feature addresses a growing concern for older employees and may offer some peace of mind. Its role in retention is likely to be tied to how it complements other retirement planning options and employee support initiatives.
Conclusion: Monitoring the Long-Term Effects
While the provisions introduced by SECURE 2.0 offer new opportunities for both employers and employees, their ultimate impact on employee retention will depend on how they are implemented and communicated within the broader context of total compensation and job satisfaction. Employers seeking to align their 401(k) offerings with retention goals may benefit from ongoing reviews of plan performance and employee feedback.
At Gatewood Wealth Solutions, we specialize in helping employers navigate the evolving landscape of 401(k) plans, including the latest SECURE 2.0 updates. If you have any questions or need guidance on implementing these changes, our team is ready to assist. Feel free to reach out—we're here to ensure your retirement plan is optimized for both compliance and employee engagement.
Micah Alsobrook, CPFA®, MBA, is a Retirement Plan Consultant at Gatewood Wealth Solutions. He specializes in helping employers optimize their 401(k) plans to reduce liability, improve employee satisfaction, and stay compliant with evolving regulations.
--
This material is being provided as a general template for plan sponsor review. Plan sponsors should seek legal guidance in developing a document specific to their plan. In no way does advisor assure that, by using this template, plan sponsor will be in compliance with ERISA regulations.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
LPL Tracking #626475
コメント