Secure 2.0 Act

SECURE 2.0 Act of 2022 was passed as part of the Consolidated Appropriations Act of 2023 and provides improvements in the ability to save for retirement. The provisions of the Secure 2.0 Act become effective at different times. The following provisions became effective in 2025:

• Catch-up contributions (mandatory if the plan allows for catch-up contributions) – increase in contribution limit for ages 60-63. The amount that a participant can contribute increases to $11,250 if they are between the ages of 60 and 63. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable IRS limits. This allows for participants that are nearing retirement age the ability to increase retirement savings before retirement.
• Automatic enrollment and escalation (mandatory, but there are exceptions noted below) – 401(k) and 403(b) plans to automatically enroll participants in the plan upon becoming eligible (or the employees have the choice to opt out of the plan). The initial automatic enrollment amount is at least 3% but not more than 10%. Each year thereafter that amount is increased by 1% until it reaches at least 10%, but not more than 15%. If the 401(k) or 403(b) plan was established before December 29, 2022, the plan is excluded from this mandatory provision. There is also an exception for small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than 3 years), church plans, and governmental plans.
• Long-term, part-time employees (mandatory) – this provision was included in the SECURE Act of 2019 to allow long-term, part-time employees to participate in a 401(k) plan. This provision added dual eligibility requirements for these part-time employees where the plan sponsor must allow workers that complete 1 year of service with 1,000 hours or three consecutive years of service with 500 hours of service in each year to participate in the plan. The SECURE 2.0 Act reduced eligibility from three years to two years which is effective after December 31, 2024. It can be become burdensome to track hours worked if the plan sponsor has many part-time employees. Working with your payroll provider or plan service provider to provide tools that can assist with monitoring the eligibility over the eligibility period could help reduce the risk of improperly excluded eligible part-time employees.

The following mandatory provisions were in effect prior to 2025. Is your plan in compliance for these mandatory changes?

• Roth required minimum distribution rules – eliminates the pre-death distribution requirement for Roth accounts in employer plans.
• Hardship withdrawal rules for 403(b) plans – 403(b) plans will comply with the same hardship withdrawal rules as 401(k) plans. For example, all participant account balances are available for hardship distributions.
• Required Minimum Distributions (RMD) Age Increase – RMD age raised to 73 (for those turning 72 after Dec 31, 2022) and 75 (for those turning 74 after Dec 31, 2032).
• Top-heavy rules modification to defined contribution plans covering excludable employees – this provision allows for separate top-heavy testing for employees that are excluded from participating due to age or service requirement.

As a plan sponsor, we strongly encourage you to reach out to your plan service providers to understand which Secure Act provisions have been implemented already or will be implemented when they become effective. Not all provisions are mandatory so understanding which provisions are applicable to your plan is important to maintain compliance and selected for the best interest for the plan and its participants. In addition, the IRS requires the plan document to be formally amended of these provisions, which is by the end of 2026.

THIS ARTICLE WAS ALSO FEATURED IN PENSION PLANNER VOL. 8. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE!