Key SECURE Act 2.0 Requirements for 2025

New provisions are in effect this year under the SECURE Act 2.0 legislation for employers and plan administrators. Leaders in these roles must maintain an understanding of the new provisions, both required and optional, that began on January 1, 2025 to stay compliant with the guidance and with changes provided by your recordkeeper or third-party administrator (TPA) that can affect plan administration. The following are the provisions and what they mean for employers:

Long-term Part-time Employees

The SECURE Act 2.0 changed the look back service requirement for long-term part-time employees with at least 500 hours worked from three consecutive years to two. Employers are now required to count service toward this retroactively to January 1, 2023. These rules also include 403(b) plans subject to ERISA.

In addition, employers can require employees to satisfy a second prong of an attained age of 21, even if the age in the plan document differs.

Automatic Enrollment for New Plans

Any plan, including 401(k) and 403(b) plans, that are established after December 29, 2022 must provide automatic enrollment for all eligible employees. This requirement applies to most companies with some exceptions for new/small businesses, governmental plans, and church plans. SECURE 2.0 legislation set the initial automatic contribution rate to a minimum of 3% of employees’ salaries, increasing by 1% annually until it reaches at least 10% but not to exceed 15%. Employees can adjust this or opt out at any time.

Super or Enhanced Catch-Up Contribution

Unlike some of the required changes, the enhanced catch-up contribution is optional. This new provision allows for increased catch-up contributions for retirement plan participants ages 60 to 63 up to $11,250 in 2025 (anyone turning 64 in 2025 does not qualify). This is 150% of the 2024 catch-up contribution limit, adjusted for inflation.

Roth Catch-Up Contributions Delayed Until 2026

This requirement start date, which was first delayed until January 1, 2025, has once again been extended. This requires employees that earn $145,000 or more to make catch-up contributions to their retirement plans using Roth after-tax rules instead of traditional pre-tax rules. The contribution rule was delayed, as more guidance was needed due to the complexity of implementation. More guidance is explored in the recently proposed regulations below.

Proposed Regulations Issued in 2025

The Treasury Department and the IRS have recently issued proposed regulations to provide guidance on implementing the new SECURE 2.0 provisions:

1. Guidance on Automatic Enrollment: The proposed regulations detail how plan administrators should implement the automatic enrollment requirement. This includes making sure that plans automatically enroll employees at the specified contribution rates and provide clear opt-out options.

2. Additional Guidance on Enhanced/Super Catch-up Contributions: As outlined in the proposed regulations by the Treasury Department and the IRS, further guidance and a new provision may be necessary to meet the universal availability requirement when a plan uses the increased limit for catch-up eligible participants reaching a certain age. This new provision would create an exception to the general rule, ensuring that not all participants are subject to the increased catch-up limit.

3. Roth Catch-Up Contributions: The proposed regulations also address the Roth catch-up contribution requirement. It provides clear guidance on how plan administrators can comply with this rule, ensuring that high-earning employees over the age of 50 correctly allocate catch-up contributions to Roth accounts.

Confusion first surrounded what this meant for employers that do not offer a Roth contribution program at their company. The regulations do not mandate that employer plans must include a qualified Roth contribution program. Employees at this income and age threshold cannot make catch-up contributions within that plan unless the Roth feature is part of the plan.

4. Public Comments and Hearings: The IRS and Treasury are seeking public comments on these proposed regulations. A public hearing will take place in April.

What Does This Mean for Your Company?

The SECURE Act 2.0 introduces several important provisions to enhance retirement security and savings. As most of the above regulations are in effect now, employers and plan administrators must have a comprehensive understanding of these rules to ensure compliance and maximize the benefits for their employees. If you have any questions or need further information on how these changes might affect your organization, please contact our team.

These materials are based upon publicly available information and are provided for general information and educational purposes only. Although the information contained herein has been compiled from data considered to be reliable, the information is unaudited and is not independently verified, and therefore we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Sikich Financial does not provide tax or legal advice. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

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