Emergency Savings Accounts and Mandatory 401k Plans Coming In 2024

Beginning in 2024, employers will have additional flexibility when it comes to offering emergency savings accounts to their workers.

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The Secure Act 2.0, which was signed into law in the closing days of 2022 and will take effect at the beginning of the new calendar year, enables employers to withhold as much as 3% of opting-in employees’ paychecks up to $2,500. That money is placed into said emergency savings accounts, from which employees can then withdraw their money untaxed up to four times a year with no penalties whatsoever. 

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Given that financial security has become an area of growing concern for many in the US, with some estimates putting the number of Americans living paycheck to paycheck at around 60%, it’s no surprise that more than 4 in 10 employees expressed their desire to be automatically enrolled in this kind of emergency savings program in a recent survey.

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Despite the surging demand for emergency accounts and employee benefits that help address financial security issues generally, only about 10% of companies offered emergency savings funds as of 2022, so a significant competitive advantage can still be obtained for forward-looking organizations as a result of the existing demand gap between what employees want and what employers are providing.

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That said, the number of companies offering emergency savings accounts is poised to increase significantly next year, so that competitive advantage may quickly transition from an opportunity to get ahead into a requirement to keep up. 

Some of the other sweeping changes to retirement planning and savings ushered in by the Secure Act 2.0 include:

• Mandatory 401k Enrollment: Most companies with more than 10 employees that have been in operation for at least 3 years will be required to automatically enroll employees into their 401k plan with between 3% and 10% automatic contributions. There’s also a tax credit available for many companies to cover the additional administrative burden of automatic enrollment.

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• Starter 401ks With No Employer Match Requirement: The expense of matching employee contributions has deprived many employees over the years of the benefits of having a 401k account even in the absence of matching employer contributions, which should no longer be an issue under the new law. 

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• Increased Catch-up Contributions: The amount of annual contributions that employees can begin putting into their 401ks at age 50 is being increased by 50% from $6,500 to $10,000, and that limit is now indexed to inflation to ensure that cap stays appropriate and relevant into the future.

You can read more about the Secure Act 2.0 here and the many effects that it will have on retirement savings and planning for employers and employees, both full-time and part-time.