The SECURE Act 2.0 which was signed into law by President Biden in late December 2022 includes over 90 provisions impacting employers, plan sponsors and plan participants. The legislation was included in the Consolidated Appropriations Act of 2022 and is designed to improve individuals’ ability to save, expanded access to employer sponsored retirement plans, and make plan administration easier for employers. Many of the popular provisions such as an increased RMD age, student loan matching, emergency withdrawals, and pension linked emergency savings accounts have already become effective. However, starting on January 1, 2025, there are several additional provisions scheduled to go into effect. This includes expanding automatic enrollment requirements, higher catch-up limits, and improved coverage for part-time employees. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key provisions.
2025 Provisions
- Expanding Automatic Enrollment (Section 101) – This mandatory provision requires 401(k), 403(b) and other plan sponsors to automatically enroll participants between a 3% to 10% deferral percentage. This rate should increase every year by 1% to a minimum of 10% but not to exceed 15%. Employees will have up to 90 days to opt out and will then be entitled to take a distribution to recover any automatic deferrals. It is important to note there is an exception for small businesses with 10 or fewer employees, those in business for less than 3 years, and certain church and government plans. This requirement applies to plan years starting after December 31, 2024
- Higher Catch-Up Limits (Section 109) – Currently, participants aged 50 and older are allowed to make catch up contributions. This is an amount over the established limits designed to allow those closer to retirement to accelerate savings. This provision increases these limits to the greater of $10,000 or 50% more than the regular catch-up amounts for 2025. It applies only to individuals who are 60, 61,62 and 63 years old. This amount will be indexed for inflation starting in 2026, and is effective for plan years starting after December 31, 2024.
- Long Term Part Time Workers (Section 125) – When the SECURE Act was passed in 2019 it called for changes to allow certain part-time workers access to employer sponsored retirement plans. The first part time employees meeting established requirements (three consecutive years with at least 500 hours of service) would have become eligible in 2024. This provision expands access by requiring employers to grant access to part-time employees if they have completed 500 hours in each of the two consecutive prior years and have reached 21 by the end of the second year.
- Long Term Care Premiums (Section 334) – This provision allows retirement plans to distribute up to $2,500 each year to cover the cost of long-term care insurance premiums. These distributions are exempt from the standard additional 10% tax which would otherwise apply. It is important to note that only a policy for high quality coverage is eligible. In addition, participants must file premium statements with the plan sponsor.
- Plan Amendments to Maintain Conformity (Section 501) – This section allows plan sponsors to make needed amendments to be made on the last day of the first plan year starting on, or after, January 1, 2025. This is permitted if the plan operates in accordance with these amendments as of the effective date of the requirement.
The changes mandated by the SECURE Act 2.0 have provided expanded savings opportunities and simplified plan administration. Although the legislation was passed a few years ago there are still provisions coming into effect soon. If you have questions about the information outlined above or need assistance with your next retirement plan audit, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.