The SECURE 2.0 Act of 2022, which builds on the original SECURE Act of 2019 contains over 90 provisions that have varying effective dates. Many of these provisions were designed to help individuals save more effectively for retirement, improve access to retirement plans, and increase the flexibility of retirement saving options.
While the majority of these provisions have already been implemented, there are a few key provisions that will enhance retirement savings starting in 2025. They include the following:
Automatic enrollment and automatic escalation will be required for all 401(k) and 403(b) plans (with certain exceptions for collective bargaining plans, church plans, and governmental plans, as well as plans established on or before December 29, 2022). The initial automatic enrollment amount is at least 3% but not more than 10%. Each year thereafter, that amount is increased by 1% until it reaches at least 10% but not more than 15%.
Automatic enrollment is designed to boost participation rates in retirement plans. Many individuals, particularly younger employees or those with lower incomes may not opt into a retirement plan on their own. By automatically enrolling them, SECURE 2.0 seeks to ensure that more people start saving for retirement earlier and allow them to compound their returns over a longer time period.
The Act goes one step further in also implementing automatic escalation. Automatic escalation increases a participant’s contribution rate by a small percentage (typically 1%) each year. Together, both automatic enrollment and escalation help combat inertia and procrastination which can be barriers to saving, improve retirement preparedness, reduce the risk of outliving savings, and provide financial wellness and peace of mind for employees.
Workers aged 60 to 63 during the calendar year they are contributing may now contribute a higher, "super catch-up" amount to their retirement accounts, such as a 401(k), with a limit of $11,250 in 2025. This is significantly higher than the standard catch-up limit of $7,500 for those 50 and older. This SECURE 2.0 Act provision is aimed at helping older workers increase their retirement savings. Once a participant turns 64, they revert back to the standard age 50+ catch-up of $7,500.
The requirement to allow long-term, part-time employees to participate in an employer’s 401(k) plan is reduced to two years (from three years) and extends these rules to ERISA-covered 403(b) plans.
A long-term, part-time employee is eligible to participate in a qualified cash or deferred arrangement (CODA) if they complete the applicable number of consecutive 12-month periods in which they perform at least 500 hours of service and attain age 21 by the close of the last 12-month period. It’s important to note that all plan years that start before January 1, 2021, must be disregarded when determining who qualifies as a long-term, part-time employee.
As a reminder, plans must be amended to incorporate any changes related to SECURE 2.0 by December 31, 2026. For collectively bargained plans, the deadline is December 31, 2028, and, for most governmental plans, it is December 31, 2029.
These provisions along with the other SECURE 2.0 provisions that have already been implemented were designed to enhance retirement savings and financial security for all employees no matter where they are in their careers. If you have any questions about the upcoming 2025 provisions and how they may affect your plan, please contact your Sentinel representative.
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