As provisions of the SECURE 2.0 Act continue to roll out, more workers may have access to workplace savings plans and some will have the ability to boost their contributions in 2025.
The original SECURE Act, passed in 2019, marked the most significant policy changes to retirement savings in decades. In late 2022, the SECURE 2.0 Act was signed into law as a follow-up to the original bill. SECURE 2.0 introduced dozens of provisions to address access to a retirement plan and encourage saving. The provisions are set to be implemented over several years.
In 2025, several key provisions will take effect that could expand access to employer-sponsored retirement plans for more workers as well as allow workers who are age 60 and older to contribute more.
Here are the new rules taking effect this year.
1. Additional catch-up contributions at age 60
Beginning in 2025, participants in employer-sponsored defined contribution plans like 401(k)s can increase catch-up contributions at ages 60, 61, 62 and 63. The additional contribution is the greater of $10,000 or 150% of the regular catch-up contribution in place for 2025. For 2025 the catch-up contribution for those reaching age 50 is $7,500, so the catch-up contribution for participants ages 60-63 will be $11,250. In order to make the higher catch-up contribution for a particular year, the individual must attain age 60, 61, 62, or 63 by the end of the year. For example, a 59-year-old today would be eligible for the higher catch-up contribution as long as they turn age 60 by the end of the year.
This additional catch-up contribution also applies to those in SIMPLE IRA plans:
- For this year the "regular" catch-up for those who reach age 50 is $3,500
- The catch-up for those ages 60-63 increases to $5,250
- Some SIMPLE plans may allow higher regular and catch-up contributions
For SIMPLE plans, beginning in 2024, employee deferral and age 50+ catch-up contributions increased by 10% for plans with 25 or fewer employees. SIMPLE plans with more than 25 employees may offer the increased employee deferral and catch-up contribution if the plan increases the matching contribution (from 3% to 4%) or the non-elective contribution (from 2% to 3%).
2. Mandatory auto-enrollment
Another SECURE 2.0 provision which begins in 2025 requires certain retirement plans to automatically enroll employees. There are some exceptions to this new rule including:
- Plans established before December 29, 2022, which is the effective date for SECURE 2.0
- Plans with 10 or fewer employees
- New employers defined as being in business for less than three years
- Certain types of plans including church plans, governmental plans, and SIMPLE plans
3. Part-time employees participating in a retirement plan
Under the original SECURE Act, the rules governing who can participate in a 401(k) plan were modified to allow more part-time workers to participate in a workplace plan. 401(k) plans are required to cover employees who are at least 21 years old and have worked at least 500 hours in the last three years (defined as three consecutive 12-month periods). The previous threshold was 1,000 hours in a year. This change allowed more part-time workers to make payroll deferrals into a workplace retirement plan.
Under SECURE 2.0, beginning in 2025, the time threshold for part-time workers to participate in a plan and make salary deferrals is reduced from three years to two years. Plan sponsors can define more liberal rules around participation within a plan document, but they must, at a minimum, adhere to these participation rules.
Time for a retirement review?
Given these new policy changes, it may be an opportune time for workers and employers to consider a retirement plan review. Individual plan participants ages 60 through 63 should evaluate the higher catch-up contribution to see if it makes sense to increase their savings into a plan. Also, employers should be aware of the changes around coverage for part-time workers and the new auto-enrollment requirement. It is important to note that there is a tax credit available for plans (both start-up and existing) to add an auto-enrollment feature. An employer adding an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a three-year period beginning with the first taxable year the auto enrollment feature is added.
For more details on the highlights of SECURE 2.0 see our education piece, “SECURE 2.0 provisions and planning considerations.”
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