How to Prepare for Changes to Retirement Plans In New Federal & State Legislation

Changes are coming to federal and state retirement programs this year. Here's what small business owners need to know.

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According to an AARP survey from 2021, 73% of Hawaii small business owners believe that more should be done to encourage state residents to save for retirement—with almost half agreeing that “a lot more should be done.” In addition, 63% of small business owners are concerned about their employees not having enough money to cover health care or living expenses when they retire and more than 80% would like the government to provide a state retirement savings option and a Hawaii retirement plan.

retirement plans

Small business owners may be happy to hear that there are retirement plan changes coming from both the State of Hawaii and the federal government in 2023. As a PEO, we are here to help our clients understand these changes.

How to Prepare for Changes to Retirement Plans In New Federal & State Legislation

Hawaii’s new state-run IRA and retirement savings program

In May 2022, it was announced that Hawaii had approved a state-run IRA program with voluntary enrollment. Employees will get to choose if they want to participate.

SB3289 SD2 HD2 was introduced in early 2022 to establish the Hawaii retirement savings program. The way it will be set up is that workers who work for employers with five or more employees that do not have a workplace retirement savings plan will have to sign up for the Hawaii Retirement Savings Program. Self-employed people will also have the option to participate.

Employers will not be required to contribute or match contributions to these savings accounts. The bill sets aside $25 million for a $500 match for the first 50,000 participants.

Federal rules changes to 401(k) and IRA accounts

Just before Christmas, the House approved Congress’ spending bill for 2023, which includes major changes to retirement rules for 401(k), Roth IRA, and IRA accounts. The SECURE ACT 2.0 was signed into law on December 29, 2022.

There will be many retirement account changes for Americans including an extension of the age for required minimum distributions and increased “catch-up” limits for people over 60. Overall, there are more than 90 different changes to retirement accounts included in the bipartisan bill. Some of these changes will go into effect immediately after the passage of the bill, while others won’t begin until 2024 or later.

Changes for employers

There are several changes that will impact employers in the SECURE 2.0 Act of 2022. Here are some things employers should be aware of:

Starting in 2025, employers will have the option for their employer plan to credit student loan payments with matching donations to 401(k) plans, 403(b) plans, or SIMPLE IRAs. Government employers would also be able to contribute matching amounts to 457(b) plans. This change is particularly helpful for employees with substantial student loan debt because they will be able to save for retirement by making their student loan payments, without making any direct contributions to a retirement account.

Starting in 2025, any new 401(k) or 403(b) plans must automatically enroll workers who don’t opt out. Contributions from workers who are automatically enrolled would start at a minimum of 3% and a maximum of 10%. Each year after 2025, those amounts would increase by 1% until they reach a range of 10% to 15%. (Retirement plans created before 2025 are not subject to these requirements).

Employers will have the opportunity to offer employees “pension-linked emergency savings accounts” that would act as hybrids between emergency and retirement savings. Employers could automatically enroll workers at up to 3% of their salary with a contribution cap of $2,500. Any contributions made to these emergency accounts would be taxed like Roth contributions and would qualify for employer matching. Employees could make four withdrawals per year from the account with no penalty or additional taxes. If they leave the company, they could withdraw the emergency account as cash or roll it over into a Roth IRA account (a retirement account made up of after-tax dollars).

Companies will be able to automatically transfer a participant’s IRA into a retirement plan at a new employer unless the participant proactively opts out. The Act will also give retirement plan administrators the option of deciding not to recover overpayments accidentally made to retirees, and it creates protections and limitations for retirees if companies do decide to take money back.

Beginning in 2026, administrators of private retirement plans will be required to provide participants with at least one paper statement a year unless the participant opts out.

This list of retirement plan changes is meant to be helpful but may not be comprehensive. Please speak to your HR expert for specific advice about upcoming changes to retirement accounts that may affect your business.

Partnering with Makai HR

Makai HR is here to help you with your retirement plan needs. We can work with you to create a flexible, compliant, and cost-effective retirement plan solution for you and your employees.

When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions. 

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our customized PEO solutions are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to operate your business.

What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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