Navigating the Landscape of SECURE 2.0 Provisions Coming Into Effect in 2025

Introduction

The landscape of retirement planning is undergoing significant changes, thanks to the SECURE 2.0 Act of 2022. This legislation introduces a series of provisions designed to enhance retirement savings opportunities, simplify plan administration, and encourage broader participation in retirement plans. As we approach 2025, several key elements of SECURE 2.0 are set to take effect, impacting both employers and employees alike. In this article, we’ll explore these upcoming changes, providing insights and guidance to help you navigate the new retirement planning terrain.

Mandatory SECURE 2.0 Provisions Effective in 2025

1. Expanded Eligibility for Long-Term, Part-Time (LTPT) Employees

Background

Previously, part-time employees often faced challenges in qualifying for retirement plan participation due to stringent eligibility criteria. The original SECURE Act sought to address this by requiring 401(k) plans to allow part time employees with at least 500 hours of service in three consecutive years to make elective deferrals. SECURE 2.0 builds upon this foundation to further broaden access.

What’s Changing in 2025?

Effective January 1, 2025, the service requirement for LTPT employees reduces from three consecutive years to two. This means that part time employees who work at least 500 hours in two consecutive years must be permitted to contribute to their employer’s 401(k) or ERISA-covered 403(b) plan. This change significantly accelerates the timeframe in which part time employees can begin saving for retirement through their employer’s plan.

Key Points

• Eligibility – hours: Hours are tracked using a 12-month “service computation period” which can either be an anniversary year, a plan year or a combination thereof depending on your specific plan documents.
• Anniversary year – Counts hours of service from the date of hire through the employee’s anniversary date.
• Plan year – Counts hours of service from the first of the plan year through the last day of the plan year.
• Eligibility – age: If your plan has an age requirement employees must still satisfy the age requirement.
• Employer Contributions: Employers are not obligated to provide matching or nonelective contributions to LTPT employees however, they may choose to do so.
• Nondiscrimination Testing: Employers can elect to exclude LTPT employees from certain nondiscrimination testing, simplifying compliance efforts.
• Vesting Service: LTPT employees earn a year of vesting service for each 12-month “service computation period” in which they complete at least 500 hours of service. This affects the vesting schedule for any employer contributions they may receive.

Exceptions

Some plans will not be affected by the LTPT employee provision requirements, including:

• • Plans that have immediately eligibility.
  • Plans that have a set days, months or years of service requirement that is based upon an elapsed time method (as opposed to hour of service method).

Action Steps for Plan Sponsors

To comply with the new requirements, employers should:

• • • • Weigh the costs and benefits of administratively tracking the LTPT hours as well as the costs of potential implementation errors that may arise. Ultimately, Plan sponsors have the option to either comply with the LTPT provisions or change their eligibility requirements to allow immediate eligibility or have a set days, months or years of service requirement that is based upon an elapsed time method (as opposed to hour of service method).
        • Comply with the LTPT provisions
          • Ensure that payroll and HR systems are equipped to handle the administrative aspects of these provisions and begin tracking hours of service for part-time employees to identify those who will become eligible.
          • Communicate eligibility changes to part-time employees, informing them of their upcoming opportunity to participate.
          • Decide whether to offer employer contributions to LTPTEs and amend the plan accordingly.
        • Change eligibility requirements
          • Amend plan documents to allow immediate eligibility or have a set days, months or years of service requirement that is based upon an elapsed time method (as opposed to hour of service method).
          • Communicate eligibility changes.
          • Ensure you have been compliant with the LTPT provisions thus far.

2. Automatic Enrollment and Escalation for New Plans

What’s Changing in 2025?

Under SECURE 2.0, any new 401(k) or 403(b) plans established after December 29, 2022, must include automatic enrollment and automatic escalation features starting January 1, 2025. This means that eligible employees will be automatically enrolled in the retirement plan at a minimum contribution rate, with gradual increases over time.

Key points

• • • • Automatic Enrollment Rate: Employees are automatically enrolled at a contribution rate of at least 3%, but not more than 10% of their compensation.
      • Automatic Escalation: Contribution rates increase by at least 1% annually, reaching a minimum of 10% but not more than 15% of compensation.
      • Opt out: Employees retain the right to opt out or modify their contribution level at any time.

Exceptions

Some plans and employers are exempt from these requirements, including:

• • • • Plans established before December 29, 2022.
      • Governmental and church plans, as well as SIMPLE 401(k) plans.
      • Small businesses with 10 or fewer employees.
      • New businesses less than three years old as of January 1, 2025.

Action Steps for Plan Sponsors

To comply with the new requirements, employers should:

• • • • Review any new plans established after December 29, 2022, to determine if the automatic enrollment requirements apply and ensure compliance.
      • Develop communication strategies to inform employees about the automatic features and how they can opt out or adjust their contributions.
      • Establish procedures to handle enrollment, contribution escalations, and opt-out elections efficiently.

Optional SECURE 2.0 Provisions Effective in 2025

1. Enhanced Catch-Up Contributions for Ages 60 to 63

Background

For many years, retirement savers aged 50 and over have had the opportunity to make “catch-up” contributions to their 401(k), 403(b), or governmental 457(b) plans, allowing them to contribute an additional amount above the standard limit. In 2024 and 2025, this catch-up amount is $7,500, providing a valuable boost to those looking to accelerate their retirement savings as they approach retirement age.

What’s Changing in 2025?

Starting January 1, 2025, SECURE 2.0 introduces an enhanced catch-up contribution specifically for participants who turn ages 60 to 63 during the taxable year. These individuals will be eligible to contribute an even higher amount—the greater of $10,000 or 150% of the standard age 50 catch-up limit. With projected inflation adjustments, this means the catch-up limit for those aged 60 to 63 could rise to $11,250 in 2025.

Key Points

• • • • It’s important to note that once participants reach age 64, the catch-up limit reverts back to the standard age 50+ catch-up amount.
      • Although this provision is optional, many plans that permit catch-up contributions include general language that allows participants to make maximum annual catch-up contributions under the current tax code which would make this optional provision mandatory under your plan document.

Action Steps for Plan Sponsors

• • • • Review your current plan documents to determine how your catch-up provisions are worded.
      • Decide whether to offer enhanced catch-up contributions and amend the plan accordingly.

Other SECURE 2.0 Provisions Effective in 2025

1. Retirement Savings Lost and Found Database

Overview

By December 29, 2024, the Department of Labor (DOL) is required to establish an online, searchable database—the Retirement Savings Lost and Found—to help individuals locate lost or unclaimed retirement benefits. This initiative aims to reconnect millions of Americans with retirement funds they may have forgotten or lost track of over the years.

How will the DOL obtain the information for this database?

Retirement plan administrators and authorized third parties, such as the plan’s recordkeeper or third-party administrator, may provide the required information such as SSN, name, benefits owed and if applicable the date the payments was made, etc.

Much of the information requested is currently reported to the IRS on Form 8955-SSA. However, initially the IRS indicated that it would not authorize the release of this data to the DOL. In response to comments and push back, the DOL notes that it has continued its discussions with the IRS and SSA and now believes it will be able to use the Form 8955-SSA data.

Nevertheless, the DOL is moving forward with the voluntary information collection request because of the uncertainties associated with the Form 8955-SSA data, concerns about the completeness and accuracy of that data. In addition, Form 8955-SSA currently doesn’t show if or when those benefits were subsequently paid out, while the Lost and Found database intends to collect this information.

Action Steps for Plan Sponsors

To comply with the new requirements, employers should:

• • • • Identify separated participants aged 65 or older who are owed benefits.
      • Fill those participants on DOL’s Lost and Found Data Upload template.
      • Upload the completed template to the DOL’s Retirement Savings Lost and Found Intake Portal.
      • Establish internal processes to regularly (at least annually) update participant information ensuring data accuracy and upload information to the DOL portal.
      • Monitor for further guidance from the DOL and adjust procedures accordingly.

 Plan Amendment Deadlines and Compliance

Amendment Deadlines

To remain in compliance with SECURE 2.0, plan sponsors must adopt necessary amendments by the following deadlines:

• • • General Plans: December 31, 2026.
    • Collectively Bargained Plans: December 31, 2028.
    • Governmental Plans: December 31, 2029.

It’s crucial to note that plans must operate in accordance with the new provisions from their effective dates, even if formal amendments are adopted later.

Action Steps

Employers should:

• • • • Conduct a comprehensive review of their retirement plans to identify required and optional changes under SECURE 2.0.
      • Collaborate with legal counsel and plan administrators to draft and adopt necessary amendments.
      • Ensure that plan operations align with the new rules from their effective dates to maintain compliance.
      • Maintain thorough documentation of compliance efforts and plan changes.

Conclusion

The SECURE 2.0 Act ushers in a new era of retirement planning, with significant changes set to take effect in 2025. These provisions offer increased opportunities for employees to save for retirement and require employers to adapt their plans and administrative practices. By understanding and proactively addressing these changes, plan sponsors can ensure compliance, maximize benefits for their employees, and strengthen their retirement programs.

At GreerWalker, we are committed to helping you navigate these complex changes. Our team of experts is ready to assist you in understanding how SECURE 2.0 affects your retirement plans and what steps you need to take. Please don’t hesitate to contact us for personalized guidance and support as you adapt to the evolving retirement landscape.

About the Author

Cori Pruner is a Manager in GreerWalker’s business assurance practice and serves clients across industries including employee benefit plans, motorsports, real estate, professional services, and manufacturing/distribution. Cori’s significant experience with employee benefit plan audits distinguishes her in the field. She diligently assists clients with defined contribution plan research and projects, providing them with the insights they need to make informed decisions.