Plan sponsors should prepare for new SECURE 2.0 provisions that take effect this year, including enhanced catch-up contributions for individuals aged 60-63, the mandatory auto-enrollment provision for new plans, and the upcoming Roth catch-up contribution rule for high earners in 2026. In addition, there are a few provisions already in effect that employers can still choose to implement.

Key Provisions for 2025

• Enhanced Catch-Up Contributions for Ages 60-63: Individuals aged 60 to 63 are eligible for higher catch-up contribution limits in their retirement plans. This optional provision can help older workers accelerate their savings as they approach retirement, offering a significantly higher limit than the standard catch-up contributions.
• Mandatory Auto-Enrollment for New Plans: All new 401(k) and 403(b) plans must automatically enroll eligible employees at a contribution rate between 3% and 10%, with automatic increases of 1% per year, up to a range of 10% to 15%. Employees can opt-out, but the default enrollment is expected to boost participation and savings rates. This requirement applies to plans established on or after December 29, 2022. Existing plans are generally not affected, but employers should review their plan documents to ensure compliance.
• Expanded Eligibility for Long-Term, Part-Time Employees: Employees who have worked at least 500 hours per year for two consecutive years must now be eligible to participate in their employer’s retirement plan. Previously, employers could exclude this service for vesting and eligibility purposes. Note: Employers are not required to provide matching contributions to these employees, even if the plan offers a match.

Looking Ahead to 2026

• Roth Catch-Up Contributions for High Earners: Beginning in 2026, high-income earners—those making more than $145,000 annually—will be required to make their catch-up contributions as Roth contributions. This change means that affected employees will pay taxes on these contributions upfront, allowing them to enjoy tax-free withdrawals in retirement. Recent guidance has clarified that an individual’s high-wage earner status will be determined based on their plan compensation from the previous plan year. To ensure a smooth transition, plan sponsors should begin preparing now by updating payroll systems and educating employees on the tax implications of this shift.

Provisions Requiring Opt-In

• Emergency Expense Withdrawals: SECURE 2.0 provides an exception for emergency expenses, allowing a penalty-free distribution of up to $1,000 per year. Participants can repay the distribution within three years, with up to four withdrawals annually at no expense to participants.
• Withdrawals Relating to Domestic Abuse: Participants can self-certify domestic abuse and withdraw the lesser of $10,000 or 50% of their accounts without the 10% early distribution tax. Repayment is possible over three years, with a refund for repaid income taxes.
• Student Loan Payments for matching contributions: Employers can now make matching contributions for qualified student loan payments under various retirement plans, effective for contributions made after December 31, 2023.

Action Steps for Plan Sponsors in 2025

Taking proactive measures can help ensure compliance and optimize plan design. Key action items include:

Engage Payroll Vendors. Work with your payroll provider to track employee hours, adjust catch-up contribution coding, and prepare for Roth catch-up implementation in 2026.

Communicate with Recordkeepers and Service Providers. Confirm how these changes will be integrated into your plan’s administration and ensure a smooth transition.

Assess Plan Design and Employee Impact. Evaluate how mandatory auto-enrollment and higher catch-up contributions align with your organization’s retirement goals.

Educate Employees. Provide clear, accessible information on:

• The benefits of enhanced catch-up contributions for those nearing retirement.
• The impact of mandatory auto-enrollment on their savings.
• The upcoming Roth catch-up requirement for high earners in 2026.

As SECURE 2.0 continues to evolve, remain agile and informed to effectively implement these changes and support employees in achieving their retirement goals. Staying ahead of these provisions will ensure compliance and maximize the benefits for both employers and participants. Speak with your Financial Advisor if you have any questions.