SECURE 2.0 brings more considerations in 2025. Is your retirement plan ready?

In 2025, SECURE 2.0 will introduce further changes to employer-sponsored retirement plans. This legislative package, passed in December 2022, includes over 90 provisions aimed at increasing retirement savings.

While many provisions took effect after December 31, 2023, some will become effective in 2025:

1) Required automatic enrollment

Plans established after December 29, 2022 must automatically enroll eligible employees through an eligible automatic contribution arrangement (EACA).

• Employees that do not make elective contributions must be enrolled at a contribution rate from 3% to 10% of their salary, unless they proactively opt-out.
• An employee’s contribution rate must then be automatically increased by one percentage point each year to a minimum of 10% and a maximum of 15% of their salary.
• Given that they are set up as EACA, employees are allowed to withdraw automatic contributions and any earnings within 90 days of the first contribution without having to pay the 10% early withdrawal penalty. This allows employees who have not elected to opt out, the opportunity to retroactively access these funds without penalty.
• Exemptions from the EACA Rule include: businesses with plans established before December 29, 2022, businesses with 10 or fewer employees, and businesses operating for less than three years.

2) Increased contribution limits

In 2025, plan sponsors may increase contribution limits for participants aged 60 to 63. This is not a requirement. Plan sponsors can choose whether to amend their plans as follows:

• Eligible employees can contribute the greater of $10,000 or 150% of the regular catch-up limit.
• If the plan offers the enhanced catch-up feature, participants aged 60 to 63 can contribute up to $34,750 in 2025. This is the normal contribution limit ($23,500) plus:

o Normal catch-up contribution limit for 2025 is $7,500
o 150% of $7,500 is $11,250

3) Long-term part-time employees

Long-term part-time employees must be eligible to participate in an employer-sponsored plan.

• Long-term part-time employees are defined as those who complete 500 hours of service in each of two consecutive 12-month periods and have reached age 21 by the end of the second period.
• Any such employee must be eligible to participate in 401(k) and 403(b) plans starting in 2025.

With the new year here, employers who sponsor qualified retirement plans, or who are interested in starting a qualified retirement plan, have many plan design options and changes to consider.

Whatever your goals are, now is an ideal time to speak with your advisor about retirement plan solutions for your business or enhancements to your current retirement offering.

For information on Retirement Plan Services, please visit our website. If you have any questions about your current or planned qualified retirement plan, please reach out to your plan consultant or to legal counsel.

Disclaimers:

SECURE 2.0 is expansive legislation and the summaries provided in this piece highlight only some of the Act’s sections related specifically to employer sponsored plans. Within the law, there are many more provisions dealing with technical and administrative aspects of employer sponsored retirement plans as well as provisions addressing individual retirement accounts. For a more comprehensive summary of the Act, please refer to the following website that includes a comprehensive set of articles on many SECURE 2.0 topics: SECURE 2.0: Updates and Developments. The full language of the SECURE 2.0 Act can be found within the Consolidated Appropriations Act of 2023 here.

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