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Maximizing SECURE 2.0 Benefits with Systematized Plan Design

Maximizing SECURE 2.0 Benefits with Systematized Plan Design

We’ll break down how Vestwell is making the SECURE 2.0 transition smoother for small businesses and advisors alike.

In the ever-evolving retirement landscape, few pieces of legislation have made waves quite as significant as SECURE 2.0. Enacted on December 29, 2022, SECURE 2.0 includes the Securing a Strong Retirement Act, the RISE and SHINE Act, and the EARN Act, each aimed at further improving retirement plans in the United States.

While this legislation offers many incentives and opportunities for employers who offer retirement plans, it also brings forth a set of changes that businesses must navigate.

Vestwell has simplified this transition by aligning our offerings with the provisions in SECURE 2.0. Our goal is to help our clients design plans that leverage the opportunities presented by this new legislation.

Understanding the Impact of SECURE 2.0

SECURE 2.0 brings changes such as auto-enrollment and auto-escalation, student loan matching, and increased tax incentives for employers. These measures aim to provide greater financial security for future retirees.

Auto-Enrollment and Auto-Escalation

Beginning in 2025, almost all new 401(k) and 403(b) plans established after the enactment of SECURE 2.0 will be required to automatically enroll eligible employees. The initial default contribution rate must be between 3% and 10%. This rate will increase by 1% each year, up to at least 10% but not more than 15% of the employee's earnings.

However, existing retirement plans do not have to meet these requirements. There may also be additional exemptions for new businesses or those with 10 or fewer employees.

Employer Matching of Qualified Student Loan Payments

Beginning in 2024, SECURE 2.0 will allow student loan payments to qualify for matching contributions in workplace retirement plans. Employers will be able to make matching contributions to their company retirement plan on behalf of employees paying student loans.

The matching contributions for student loan payments must vest under the same schedule as other matching contributions. Additionally, employees must be eligible for a match in order to receive the student loan matching contribution.

Increased Tax Credits

SECURE 2.0 also increased tax credits (which reduce your clients’ taxes) for employers who start a new retirement plan. Small businesses with fewer than 50 employees can now receive a startup credit of 100% of administrative expenses, up to $5,000 per year for three years. Additionally, employers can get a tax credit equal to the contributions they've made for non-highly compensated employees, up to a limit of $1,000 per employee.

The full credit is available to employers with 50 or fewer employees and is phased out for employers with between 51 and 100 employees.

The Power of Systematized Plan Design in Light of Secure 2.0

Recognizing the impact of SECURE 2.0, Vestwell uses a systematic yet personalized approach to help our clients make the most appropriate decisions regarding their retirement plans. We have taken several steps to ensure our clients are prepared for legislative changes and set up for success:

1. We’ve developed a quick but effective Plan Design Questionnaire

The Plan Design Questionnaire is a specially curated tool that allows us to get to the core of the unique needs and objectives of each employer. The questionnaire, using straightforward plain English (avoiding industry jargon), asks about fundamental aspects of the business and the employer’s objectives for offering a retirement plan. We use the responses to suggest an optimal plan design that aligns closely with the client’s goals.

2. Employers will receive an Optimal Plan Design Recommendation Report

This document is based on the employer’s responses to our Plan Design Questionnaire, as well as our experience serving over 30,000 businesses. The purpose is to simplify one of the most complex parts of the retirement world – plan design – and make it digestible to employers and advisors alike.

Along with streamlined recommendations tailored to each client’s situation, the document explains how and why these plan design decisions will benefit their business. If the employer prefers to proceed in a different direction, the document also provides alternate suggestions for them to consider, paired with any caveats or nuances they should be aware of. It’s all about creating a plan that fits seamlessly with each client’s business structure and goals — and one that’s clear and easy to understand.

However, some plans may have unique or complex needs that require additional support. That’s why we offer Vestwell Flex. Vestwell built this offering to handle complex plan designs with ease. By partnering with third-party administrators (TPAs) and streamlining billing and agreements, this solution makes it easy for nuanced plans to get the support that they need.

The Vestwell "Flex" Model: A Solution for Complex Plan Designs

3. We’ve made auto-enrollment the default for all our full-service, bundled plans.

This will help make sure your client is prepared when the auto-enrollment mandate comes into effect. It will also allow them to take advantage of an additional tax credit for adding an auto-enrollment feature to their plan. Plans that implement auto-enrollment may qualify for a $500 credit for three years. This applies to both existing and new plans and can be combined with the start-up tax credit for maximum savings. Click here to calculate your client’s potential savings.

Additionally, we direct clients towards practices that align with the provisions in SECURE 2.0, such as auto-escalation, in order to minimize future disruptions and maximize benefits.

How Vestwell Streamlines Additional Components of SECURE 2.0

In addition to refining our approach via systematized plan design, Vestwell is continuously working to address various other aspects of the SECURE Act 2.0.

For example, Vestwell will power workplace education benefits. Vestwell’s acquisition of Gradifi Solutions will add several new products to Vestwell’s platform, including tools to help employees manage student loan debt, contribute to education savings accounts, and refinance student loans. This holistic approach to financial wellness will help set employees with student loans up for success.

The SECURE Act 2.0 makes it easier for employers to support their employees through employer matching of qualified student loan payments. To further empower businesses, Vestwell is developing a suite of savings solutions that will enable employers to provide comprehensive workplace financial benefits.

Conclusion - Future-Proof Your Retirement Practice with Vestwell

The introduction of SECURE 2.0 has reshaped the retirement industry, introducing changes such as mandatory auto-enrollment, student loan payment matching, and increased tax credits for employers who start a new retirement plan.

Vestwell’s goal is to help businesses and advisors not only understand but also benefit from these new provisions. Our proactive approach, coupled with the power of systematized plan design, equips businesses and advisors with the tools they need to seamlessly navigate the post-SECURE 2.0 world.

And for plans that need additional support, Vestwell Flex makes partnering with a TPA smoother and more intuitive than ever before. We offer a blend of flexibility, customization, and efficiency tailored to meet the unique demands of every plan, ensuring that your clients get the support that they need. Click here to learn more.