SECURE 2.0 Provisions Effective in 2025
In addition to the auto-enrollment requirement we covered in our previous article, there are more provisions from SECURE 2.0 which will be effective in 2025. These include higher catch-up contribution age limits, improvements to coverage for part-time workers, and the enactment of a national retirement savings lost and found database. Below, we will break down what each of these provisions mean and how they may affect your plan.
Effective January 1, 2025, Section 109 of SECURE 2.0 increases the catch-up contribution limit for active participants turning ages 60, 61, 62, or 63 in the calendar year to either $10,000 or 50 percent more than the regular catch-up contribution limit, whichever is greater. The increased amounts will be indexed for inflation after 2025. For example, assuming an effective deferral limit of $23,000 and a catch-up contribution limit of $7,500, an active participant aged 60-63 could contribute a total of $34,250 instead of $30,500 ($23,000 towards the elective deferral limit and an additional $11,250 towards the catch-up limit).
In 2024, long-term part-time employees have been required to have worked 500 hours or more for 3 consecutive 12-month computation periods to participate in their company’s 401(k) plan. Beginning in 2025, this requirement will be lowered to two years and extends these rules to ERISA-covered 403(b) plans under Section 125 of SECURE 2.0. This does not apply to plans covered by a collective bargaining agreement, plans which allow immediate eligibility, or plans which have a short service requirement. Employees which fall into this long-term part-time category, are not covered by an exception, and who meet the two-year service requirement, must be given the opportunity to contribute to the plan beginning January 1st, 2025. Section 125 also provides that pre-2021 service is disregarded for vesting purposes, just as such service is disregarded for eligibility purposes under current law, effective as if included in the SECURE Act to which the amendment relates. This provision also extends the long-term part-time coverage rules to 403(b) plans that are subject to ERISA.
The Department of Labor will now be required to facilitate an online searchable database, to be known as the Retirement Savings Lost and Found, as a result of the enactment of Section 303 of SECURE 2.0. The aim of this database is to help American workers locate any lost retirement savings they had previously earned. Lost retirement savings can be a result of retirement plans losing track of people owed benefits due to recordkeeping, employer changes, or other reasons. The current plan for the database is for it to be created no later than two years after the SECURE 2.0 enactment date. We will monitor the status of the creation of this database and communicate any changes to this timeline.
Please reach out to us if you believe your plan may need to make changes for these new rules and we will work with you on the decisions that need to be made and documented.