Effective Jan. 1, 2025, employers must ensure their workplace retirement plans comply with the latest provisions of the SECURE Act 2.0, which aims to improve taxpayers’ retirement savings and the costs and complexities businesses incur administering those plans. Since the law’s enactment, employers of all sizes have gained expanded tax credits for establishing employee retirement savings plans, simplified methods for filing plan returns and less paperwork for plan participants taking hardship withdrawals.
Automatic Enrollment Requirement
Employers with more than 10 employees that adopted 401(k) plans, 403(b) plans or multiple employer plans (MEPs) on or after Dec. 29, 2022, must automatically enroll eligible employees in those plans with an initial salary deferral contribution rate of between 3 percent and 10 percent. For SIMPLE 401(k) plans, the automatic enrollment provision applies when the employer has 100 or fewer employees.
Qualifying employers with a minimum of three years of operations must increase the automatic contribution percentage by 1 percent each subsequent year until it reaches 10 percent and no more than 15 percent. Eligible employees may opt out of the plan at any time.
Higher Catch-Up Contributions
Starting Jan. 1, 2025, employers may offer plan participants ages 60 through 63 years old the ability to make annual catch-up contributions of up to $11,250 to a workplace plan. The amount is indexed annually for inflation. Catch-up contributions for individuals ages 50 through 59 and 64 or older remain at $7,500 in 2025.
Faster Eligibility for Part-Time Workers
Part-time workers may qualify to participate in an employer’s 401(k) or 403(b) plan in 2025 after completing two years of service with at least 500 hours worked per year. Previously, long-term part-time (LTPT) workers’ eligibility was based on three years of service. Plan sponsors should review their plan design and employee population to determine if they are subject to the LTPT employee requirements and whether to include LTPT in employer contributions and non-discrimination testing.
For ERISA 403(b) plan sponsors, employers may exclude from LTPT eligibility student employees, nonresident aliens and employees otherwise eligible under another section 403(b) plan, 457(b) plan or a section 401(k) plan sponsored by the same employer.
Retirement Savings Lost and Found
The Department of Labor (DOL) has been collecting information from plan administrators to launch a searchable database of retirement savings plans that workers may use to locate lost retirement savings they earned and are entitled to receive.
Simplified Paperwork Requirements
In 2025, the U.S. Treasury and DOL are expected to issue regulations allowing plan administrators to consolidate certain required notices, including those concerning automatic enrollment, default investment alternatives, withdrawals from eligible automatic contribution arrangements and alternative methods of meeting nondiscrimination requirements.
Looking ahead to 2026, plan administrators should be prepared to provide defined contribution plan participants with at least one written statement on paper each year and at least one written statement every three years to defined benefit plan participants unless employees opted into e-delivery of plan statements.
About the Author: Olga Ismail is the head of Retirement Plan Consulting and a financial advisor with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. She can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Olga Ismail is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed. Future investment performance cannot be guaranteed. Matching contributions from your employer may be subject to a vesting schedule, please review your retirement plan documents or consult with a financial professional for more information.
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Posted on January 8, 2025