SECURE 2.0 Brings Changes in 2025
Several provisions of the SECURE Act 2.0, passed in 2022, will take effect in 2025. Plan sponsors of defined benefit (DB) and defined contribution (DC) plans should begin reviewing the following changes to ensure compliance and address any questions before the new rules take effect.
Mandatory Automatic Enrollment for DC Plans
Under SECURE 2.0, 401(k) and 403(b) plans established after Dec. 29, 2022, will be required to implement an eligible automatic contribution arrangement (EACA) for plan years beginning after Dec. 31, 2024. This provision also applies to multiemployer DC plans that add a 401(k) feature. However, these multiemployer plans face challenges due to the complexity of coordinating payroll, tracking deferrals, and managing compliance for employees working for multiple employers. Congress is considering, but has not yet acted on, a technical corrections bill to SECURE 2.0 to provide technical amendments, clerical amendments, and clarifications of the law. This bill could serve as a vehicle for provisions to alleviate some of these issues.
Higher Catch-Up Contributions for Ages 60-63
Beginning in 2025, 401(k), 403(b), and governmental 457(b) plans can allow higher catch-up contributions for participants ages 60-63. The maximum catch-up contribution will be the greater of $10,000 or 150% of the regular catch-up limit, with an annual inflation adjustment. For example, if the regular limit for 2025 is $7,500, participants ages 60-63 could contribute up to $11,250. Plans will not be required to offer this feature, but those that do can provide valuable additional savings opportunities for older employees.
Eligibility for Long-Term Part-Time Employees
Starting in 2025, long-term part-time (LTPT) employees will be eligible to participate in 401(k) and ERISA-covered 403(b) plans after completing two consecutive 12-month periods with at least 500 hours of service and once they turn 21. This change expands eligibility for retirement savings, providing more workers access to these vital benefits.
Plan Amendments and Deadlines
Plan sponsors must amend their plans to comply with SECURE 2.0 provisions by Dec. 31, 2026. The deadline for collectively bargained plans is extended to Dec. 31, 2028, and for most governmental plans, until Dec. 31, 2029. Plans should be operated in accordance with SECURE 2.0 rules before the amendment deadline to avoid penalties.
Changes to DB Plans’ Annual Funding Notice
SECURE 2.0 also introduces changes to the annual funding notice for single-employer and multiemployer DB plans starting in 2025. These changes include new disclosure requirements for participant counts and the plan’s funded status. Guidance from the U.S. Department of Labor will help plan sponsors meet these new requirements.
Plan sponsors should consult with their service providers and advisors ahead of the 2025 effective dates for more information and guidance on implementing these changes.
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