SECURE Act 2.0 Provisions Taking Effect in 2025 (and Beyond)
The SECURE Act 2.0 introduced several sweeping changes to how Americans can use retirement savings plans. Some provisions have already taken effect, while others are scheduled for implementation in 2025 and beyond. Plan sponsors should be aware of these upcoming provisions, as many will require them to decide whether to opt in or out. Here's a summary of the key changes that plan sponsors need to know.
Key Provisions Available for Implementation in 2025:
Increased Catch-Up Contribution Limits for Ages 60-63: This provision from SECURE 2.0 allows participants aged 60-63 to make larger catch-up contributions to their 401(k) plans starting in 2025. The limit increases to the greater of $10,000 or 150% of the standard catch-up contribution limit. Watch out! Your payroll needs to be able to support this to make it happen.
Mandatory Automatic Enrollment for New Plans: SECURE 2.0 introduces a requirement for new 401(k) and 403(b) plans established after December 29, 2022 to automatically enroll eligible employees at a contribution rate of at least 3% (but not more than 10%). This provision will become effective in 2025. Caution – payroll and notice delivery will be critical for implementation.
Part-Time Worker Eligibility Expansion: SECURE 2.0 expands eligibility for part-time workers to participate in 401(k) plans. Starting in 2025, part-time employees who have completed at least 500 hours of service for two consecutive years become eligible to participate. Are you tracking hours?
Other Provisions:
The first group of distribution provisions seems to require an opt-in by plan sponsors. We are not seeing many recordkeepers automatically opt plans in, and some are still building programs around them. Those include:
Distributions (exceptions to the 10% early penalty):
Terminally Ill Individual Distributions: for distributions from both IRAs and employer-sponsored retirement plans (i.e., 401(k), 403(b)) for those participants who are terminally ill.
Domestic Abuse: for participants who are victims of physical, psychological, sexual, emotional, or economic domestic abuse within one year from the date of the abuse by a spouse or domestic partner. The participant must self-certify their status and request a distribution for up to the lesser of $10,000—indexed for inflation—or 50% of the participant’s vested account.
Federal Disaster: for individuals with a principal residence in a federally declared major disaster area and who experience losses arising from the disaster. This provision is effective for distributions that occur on or after January 26, 2021, and is limited to $22,000 per disaster.
The next optional provision hasn’t been popular so far but could be in the future. The background: employees with student loans have a harder time finding money to put towards their retirement plan contributions. This provision would allow employers to count the money going towards loan payments as “plan contributions” that would count towards receiving the match.
Student Loan Matching: Starting in 2024, employers have the option to make matching contributions to retirement plans based on an employee’s student loan payments. While not mandatory, this provision may see increased adoption in 2025 as more employers become aware of it and its potential benefits for attracting and retaining talent.
Finally, the jury is still out on high earners having to contribute catch-up contributions as Roth (after-tax) contributions.
Roth Catch-Up Contributions: This provision was delayed until 2026. The new rule requires catch-up contributions for those earning over $145,000 (indexed for inflation) to be made on a Roth (after-tax) basis. More guidance from Treasury and IRS is expected.
The problem that most plan sponsors face with all of these provisions is making wise decisions while not creating more work for everyone involved. Something that sounds like a good idea in theory doesn’t always translate to practice well. I’ve written other blog posts about the Land of Unintended Consequences and how these are lurking everywhere within plans – we could do this, but should we?
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