Understanding the Latest Secure 2.0 Changes for Small Pension Plans and Recommended Client Actions
- Everlia Pension
- Jan 1
- 3 min read
The Secure 2.0 Act has introduced significant changes affecting small pension plans, reshaping how these plans operate and what is required from plan sponsors. For small businesses managing pension plans, staying informed and proactive is essential to ensure compliance and maximize benefits for employees. This post breaks down the key Secure 2.0 updates relevant to small pension plans, explains their impact, and offers practical recommendations for plan sponsors.
What is Secure 2.0 and Why It Matters for Small Pension Plans
The Secure 2.0 Act builds on the original Secure Act of 2019, aiming to improve retirement savings options and expand access to retirement plans. While many provisions affect large employers and individual savers, several changes specifically target small pension plans, typically those with fewer than 100 participants.
Small pension plans often face challenges such as higher administrative costs and limited resources for compliance. Secure 2.0 introduces new rules designed to ease these burdens while encouraging more small businesses to offer retirement benefits.
Key Secure 2.0 Changes Impacting Small Pension Plans
1. Increased Automatic Enrollment Requirements
Secure 2.0 requires most new small pension plans to include automatic enrollment features. This means employees are automatically signed up for the plan unless they opt out. The goal is to boost participation rates and help employees save more consistently.
Automatic enrollment minimum contribution: Plans must start employees at a minimum contribution rate, typically 3% of pay, increasing annually until it reaches 10%.
Applicability: This applies to new plans established after a specified date, with some exceptions for very small employers.
2. Higher Catch-Up Contribution Limits for Older Employees
Employees aged 60 to 63 can contribute higher catch-up amounts to their pension plans. This change helps older workers accelerate their savings as they approach retirement.
New catch-up limit: The limit increases to $10,000 or 150% of the regular catch-up amount, whichever is greater.
Impact on small plans: Small pension plans must update their contribution limits and communicate these changes to eligible participants.
3. Increased Plan Start-Up Credit for Small Employers
To encourage small businesses to start retirement plans, Secure 2.0 raises the tax credit available for plan start-up costs.
Credit increase: The credit can now cover up to 100% of start-up costs, capped at $5,000 annually for three years.
Eligibility: Employers with up to 50 employees qualify, making it more affordable to establish a pension plan.
4. Expanded Eligibility for Part-Time Workers
More part-time employees must be allowed to participate in pension plans.
New rule: Employees who work at least 500 hours per year for three consecutive years become eligible.
Effect: Small pension plans need to track hours carefully and update eligibility rules.
5. Simplified Required Minimum Distribution (RMD) Rules
Secure 2.0 raises the age at which participants must begin taking RMDs from 72 to 73 starting in 2023, and then to 75 by 2033.
Benefit: This gives retirees more flexibility to keep funds invested longer.
Plan adjustments: Small pension plans must update their systems and notify participants about the new RMD age.
Recommended Actions for Small Pension Plan Sponsors
Review and Update Plan Documents
Small pension plans must revise their plan documents to reflect Secure 2.0 changes, including automatic enrollment, catch-up contributions, and eligibility rules. Work with your plan administrator or legal advisor to ensure compliance.
Communicate Changes to Employees
Clear communication is critical. Inform employees about:
Automatic enrollment and how to opt out
New catch-up contribution limits for older workers
Expanded eligibility for part-time employees
Changes to RMD age requirements
Use multiple channels such as emails, meetings, and printed materials to reach all participants.
Adjust Administrative Processes
Update payroll systems and recordkeeping to:
Track hours for part-time eligibility
Implement automatic enrollment and contribution escalation
Calculate new catch-up limits
Manage RMD timing and notifications
Automation tools can reduce errors and administrative burden.
Take Advantage of the Start-Up Credit
If you are considering starting a new pension plan, Secure 2.0’s increased tax credit makes it more affordable. Consult your tax advisor to understand how to claim this credit and maximize your savings.
Monitor Regulatory Guidance
The IRS and Department of Labor will issue further guidance on Secure 2.0 implementation. Stay informed through trusted sources and professional advisors to ensure ongoing compliance.
How We Can Help You Navigate Secure 2.0 Changes
Implementing Secure 2.0 requirements can be complex, especially for small pension plans with limited resources. Our team specializes in helping small businesses understand and apply these new rules efficiently. We offer:
Comprehensive plan reviews and updates
Employee communication strategies
Administrative support and technology solutions
Tax credit optimization advice
Contact us to schedule a consultation and ensure your pension plan meets the latest Secure 2.0 standards while supporting your employees’ retirement goals.
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