Mary Beth’s Corner

SECURE 2.0 Act: Key Changes Effective in 2025

Administration, General, IRS Notices
December 18, 2024

As we approach 2025, the SECURE 2.0 Act will implement significant changes to the retirement planning landscape. Here are some key provisions that will be mandated across all retirement plans:

Automatic Enrollment & Escalation Mandate

Starting January 1, 2025, new 401(k) and 403(b) plans established after December 29, 2022 will be required to automatically enroll eligible employees. The initial default contribution rate must be between 3% and 10% of the employee’s salary. This rate will automatically increase by 1% each year until it reaches at least 10% with maximum of 15%.

Exceptions to this mandate include:

Businesses with 10 or fewer employees

Companies less than 3 years old

Church and governmental plans
SIMPLE 401(k) plans

Because of this mandate, we have found that implementing a Qualified Automatic Contribution Arrangement (QACA) Safe Harbor Plan can be an effective plan design. The QACA Safe Harbor helps satisfy the automatic enrollment mandate while allowing plan sponsors to offer a lower match obligation with a 2-year cliff vesting schedule.

Enhanced Catch-Up Contributions

Participants who have attained age 60-63 by the end of the 2025 calendar year will be eligible for an enhanced catch-up contribution. This provides a substantial opportunity for individuals nearing retirement to decrease tax liability and boost retirement savings. Check out our Enhanced Catch-Up piece for more information!

Long-Term Part-Time Employee Eligibility

In 2024, plan sponsors were required to allow part-time employees, who perform work for at least 500 hours in each 12-month period for 3 consecutive years, the ability to defer into the plan. Beginning in 2025, part-time employees who perform work for at least 500 hours in each 12-month period for 2 consecutive years must be allowed the ability to defer into the plan. Click here for more IRS guidance.

Optional Provisions for Plan Sponsors to Adopt in 2025

SECURE 2.0 introduced several optional provisions that plan sponsors can choose to amend their plan and adopt. Here are four key provisions that may appeal to your plan sponsors in 2025:

1. Matching Student Loan Repayments

Applies to 401(k), 403(b), governmental 457(b), and SIMPLE plans

Employers can match employee student loan payments with retirement contributions

2. Penalty-Free Withdrawals for Domestic Abuse Survivors

Allows withdrawals up to $10,000 or 50% of the participant’s account

Based on self-certification of domestic abuse within the past year

Exempt from the 10% early withdrawal tax

Amount indexed for inflation in future years

3. Federal Disaster Distributions

For participants in federally declared disaster areas

Allows up to $22,000 in distributions within 180 days of the disaster

Exempt from the 10% early withdrawal tax

4. Terminally Ill Distributions

Exception to the 10% early distribution tax for terminally ill individuals

Requires evidence as specified by the plan administrator

Self-certification is not permitted

Plan sponsors can evaluate these provisions to determine which, if any, align with their goals and participant needs for 2025 and beyond.

Here’s to the New Year of Savings!

At My Benefits, we’re committed to being an expert resource for you and your business owner clients within the retirement industry. By leveraging our expertise and tailored approach, we help you navigate through the complexities of retirement planning. This ensures that our plan sponsors stay compliant with evolving regulations, are aware of the new mandates and can take advantage of new opportunities.