SECURE 2.0 Act – Section 121. Starter 401(K) Plans for Employers with No Retirement Plan

SECURE 2.0 Act – Section 121. Starter 401(K) Plans for Employers with No Retirement Plan

The recently signed Secure 2.0 Act (SECURE 2.0) authorizes a new, simplified version of 401(k) and 403(b) plans available to be adopted after December 31, 2023.

These so-called “Starter 401(k)” plans provide for employee contributions only (that is, no employer matching or profit-sharing contributions), with a total annual deferral limit of $6,000 and catch-up limit of $1,000 – substantially lower than the limits available under traditional 401(k) and 403(b) plans (currently $22,500 and $7,500, respectively).

Starter 401(k) plans will automatically satisfy nondiscrimination and top-heavy testing requirements, and it is expected that these plans will also be subject to simplified annual reporting requirements.

While Congress appears to have targeted the Starter 401(k) plan primarily at small employers, employers of any size are eligible to adopt a Starter 401(k) or 403(b) plan provided that they do not offer any other retirement plan.

While it remains to be seen how the availability of this new option will impact the retirement plan marketplace starting in 2024, the Starter 401(k) plan may appeal to employers who have resisted adopting a traditional retirement plan due to concerns about cost and administrative complexity. 

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.