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SECURE 2.0 Act: Updated Retirement Provisions for 2025

SECURE 2.0 Act: Updated Retirement Provisions for 2025

The SECURE 2.0 Act (the Act) was signed into law in December 2022, with the goal of enhancing retirement savings and expanding access to retirement plans. The Act includes more than 90 retirement savings provisions, with varying implementation dates through 2027.

Recently, significant updates have been made to several SECURE 2.0 Act provisions. Beginning on January 1, 2025, these updated provisions have taken effect, including automatic enrollment for 401(k) plans, catch-up contributions for older adults and coverage for long-term, part-time employees.

Automatic Enrollment for 401(k) Plans

Effective for plan years after December 31, 2024, the SECURE 2.0 Act requires all 401(k) plans established after December 29, 2022, to incorporate automatic enrollment unless an exemption applies. Automatic enrollment means that employees are automatically enrolled for a retirement plan, with the opportunity to opt out. The automatic enrollment must meet Eligible Automatic Contribution Arrangement (EACA) standards, which state that:

  • The initial default rate must be between 3% and 10% of compensation.
  • If the initial default rate is below 10% of compensation, it must increase by at least 1% annually until reaching at least 10%, but no more than 15%.

Businesses that have been in operation for less than three years and have 10 or fewer employees are exempt from the automatic enrollment requirement. Churches and governmental entities are also exempt.

Business owners required to comply with the Act should ensure their payroll processes account for automatic enrollment, including automatic escalation when applicable. They should also verify that the plan’s default investment fund is in place and notify employees before automatic enrollment begins. Business owners should closely monitor the first year of automatic enrollment, in case an employee is mistakenly excluded. If an error or oversight occurs, owners may use the Internal Revenue Services (IRS) safe harbor correction method to resolve any issues. This method is streamlined to fix automatic enrollment or elective deferral retirement plan errors. It allows employers to correct issues without needing to apply for formal correction through the Employee Plans Compliance Resolution System (EPCRS).

Catch-Up Contributions

The SECURE 2.0 Act allows individuals between the ages of 60 and 63 to qualify for increased catch-up contributions to their retirement plans. This catch-up limit applies to 401(k), 403(b) and governmental 457(b) plans that offer catch-up contributions for individuals who are aged 50 and older.

To qualify, participants must be between 60 and 63 years old on December 31 of the calendar year and must have already contributed the maximum deferral amount. Once a participant turns 64, he or she reverts to the standard age 50 and older catch-up contribution limit.

Below is a comparison for 401(k) catch-up contribution limits by age:

AgeCatch-Up Contribution LimitStandard Contribution LimitTotal Contribution Limit
50-59$7,500$23,500$31,000
60-63$11,250$23,500$34,750
64+$7,500$23,500$31,000

This change is optional for employers, and each plan sponsor can decide whether to implement this feature in their retirement plans.

Coverage for Long-Term and Part-Time Employees

Starting on January 1, 2025, the SECURE 2.0 Act revised its eligibility requirements for long-term, part-time (LTPT) employees. For plan years beginning after December 31, 2024, LTPT employees will be eligible to participate in 401(k) qualified cash or deferred arrangements (CODAs) or Employee Retirement Income Security Act (ERISA) covered 403(b) plans, if they have completed at least 500 hours of service within two consecutive 12-month periods. They must also be at least 21 years of age by the end of the second 12-month period.

Employers should begin tracking hours of part-time and seasonal employees, if they are not already doing so, to make sure those employees are properly included in the plan. Once employees reach the 500-hour mark for two consecutive years, they must be allowed to join the business’s plan on the next date of enrollment.

If you have any questions on the new Secure 2.0 Act provisions, please contact a Brown Plus advisor.

Posted In: Tax | Insights

About the Author - Randy Fackler, CPA, CEPA, MST

Randy is a Principal and the Tax Director at Brown Plus and is one of the key members of the Firm’s Tax Department. As Tax Director and Principal, Randy is responsible for managing tax consulting and compliance services for his clients, as well as overseeing the Brown Plus Tax Department.

Randy has over 30 years of experience in public accounting and working with clients in numerous industries including manufacturing and distribution, retail, healthcare, professional services and high-net-worth individuals. He assists clients with general business advisory services such as tax accounting methods, tax planning and consulting, cash flow needs analysis, merger and acquisition analysis, product profitability analysis, forecasting and more.

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