On December 23, 2022, Congress officially passed the SECURE Act 2.0, with the bill signed into law by President Biden eight days later on December 29th. The legislation was aimed at helping Americans better prepare for their financial future while strengthening the retirement system for both employers and employees.
Some of the provisions of SECURE 2.0 are scheduled to be put in place in 2025. Let’s take a look a few of those coming changes.
Higher Catch-Up Contributions for Ages 60-63: SECURE 2.0 allows 401(k), 403(b), and governmental 457(b) plans to offer higher catch-up contributions for participants aged 60 to 63:
- Increased Limit: In 2025, eligible individuals may contribute the greater of $10,000 or 150% of the regular catch-up limit, adjusted for inflation.
- Projected Catch-Up Limits: The regular catch-up limit for those under age 60 is expected to be around $7,500; those aged 60-63 can contribute approximately $11,250. While not required, plan sponsors may opt to amend their plans to include this enhanced catch-up option, alongside the existing catch-up contributions for participants aged 50 or older.
Mandatory Automatic Enrollment in Employer-Sponsored Retirement Plans: Starting in 2025, all 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll eligible employees in the plan through an eligible automatic arrangement. Key details include:
- Initial Enrollment Rate: Employees will be enrolled at a contribution rate between 3% and 10% of their salary.
- Automatic Increases: The contribution rate will automatically increase by 1% annually until it reaches a minimum percentage of 10% and a maximum of 15%.
- In addition to those businesses established prior to December 30, 2022, other exemptions are in place for:
- Companies with 10 or fewer employees
- Companies operating for less than three years
- Eligible arrangement must allow employees to withdraw automatic contributions (and any earnings) within 90 days of the first contribution without facing the 10% early withdrawal penalty.
Expanded Coverage for Long-Term Part-Time Employees: SECURE 2.0 builds on the previous SECURE Act by lowering eligibility thresholds and extending this benefit to certain 403(b) plans:
- Beginning in 2025, long-term part-time employees 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, will be eligible to participate in 401(k) or covered 403(b) plans.
Have questions about these new provisions and how they may benefit you? We are always here to help.
