SECURE 2.0 Act, which was signed into law on December 29, 2022, encourages more employers to offer retirement benefit plans and more employees to participate in them. The changes build upon those introduced by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and affect employer-sponsored retirement plans of all sizes.

SECURE 2.0 includes a total of 90 provisions. Some are mandatory, while others are optional and can be made at the plan sponsor’s discretion. Changes take effect between 2023 and 2027, with many beginning in 2025.

Here’s a list of SECURE 2.0 provisions that are broadly applicable and may be relevant to your plan. The list begins with provisions that will become effective in the 2025 plan or tax year and continues with a look back at those that took effect in 2024.

2025

• Automatic enrollment and escalation requirements (Mandatory)
  • Beginning in 2025, new plans established after 12/29/22 are required to enroll eligible employees automatically at a minimum pre-tax contribution level of 3%. Contribution rates must increase annually by 1% up to 10% of pay and cannot exceed 15%. Employees who don’t want to participate must act to opt out or select a different contribution percentage. Businesses must guarantee employees a 90-day opt-out period and return the contributions made.  

• Exceptions: These enrollment and escalation requirements are mandatory for all private employers except small businesses with 10 or fewer employees and those that have been in business for less than 3 years. Savings Incentive Match Plan for Employees (SIMPLE) IRAs are also excluded from this provision.

• Expedited eligibility for long-term, part-time workers (Mandatory)
  • SECURE 2.0 shortens the eligibility period for plan participation by long-term, part-time workers from 3 years to 2 years.

• Increased catch-up contributions for certain ages (Mandatory)

• Beginning in plan year 2025, this provision increases the catch-up contribution limit to $10,000  or150% of the regular catch-up limit for employees ages 60, 61,62, and 63. 150% of the 2023 limit of $7,500 is $11,250—therefore the $10,000 floor is not expected to be relevant.  Note that Participants who have Compensation in the previous calendar year in excess of $145,000 will be required to make all of these catch-up contributions on a Roth basis. Going forward, the annual limit will be indexed to inflation.

• Employer participation in Retirement Savings Lost and Found Database (Optional)
  • In 2025, plan sponsors must share current contact information with the Department of Labor for a new lost and found retirement plan database. This online tool will give workers the opportunity to locate pension benefits they may be entitled to from prior employers’ defined benefit and defined contribution plans.         

2024

• Changes to catch-up contributions (Mandatory)
  • Beginning with the 2024 tax year, employees who earn more than $145,000 are permitted to make 401(k) catch-up contributions only on a ROTH basis. Please note: Implementation of this provision has been delayed, and the change will not be enforced until 2026.

• Elimination of RMDs on Roth accounts (Mandatory)
  • Beginning with the 2024 tax year, Roth accounts in qualified plans are exempt from required minimum distributions (RMDs) prior to the account holder’s death. This change creates parity with the tax treatment of RMDs on Roth IRAs. 

• Exceptions for early withdrawal penalties (Optional)
  • Beginning in 2024, employers can exclude the 10% early withdrawal penalty in the following circumstances:
    • One annual distribution of up to $1,000 for unforeseen personal emergencies. 
    • Distributions up to $22,000 for expenses related to a federally declared disaster.
    • Distributions for domestic abuse victims of as much as $10,000 or 50% of their vested account value     

• Matching contributions for student loan payments (Optional)
  • Effective in 2024, this provision permits plan sponsors to make matching contributions for an employee’s qualified student loan payments. The vesting schedule must be the same as that for all matching contributions.

• Introduction of Starter-K, a new type of 401(k) plan (Optional)
  • This new type of 401(k) plan is for smaller employers who don’t have a retirement plan in place. Starter K is a salary-deferral-only plan and requires neither annual discrimination testing nor an annual employer contribution.

Learn More

For more information on SECURE 2.0 and guidance on provisions that are relevant to your qualified retirement plan, contact Daybright Financial.

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