How SECURE 2.0 Provisions Can Alter Employer Strategies for 2025, 2026

Several options could aid in recruitment, retention and financial wellness.

As plan sponsors continue implementing the required provisions of the SECURE 2.0 Act of 2022, they are shifting their focus to some of the optional provisions. There is significant interest in the enhanced catch-up contributions for participants ages 60 through 63 and the student loan repayment match.

Plan sponsors are also preparing for the 2026 requirement that high-earning participants make their catch-up contributions to a Roth account. Some are giving participants the option to receive the employer match as a Roth contribution rather than a pre-tax contribution. Each of these changes involves administrative complexities.

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There are several key issues to consider when deciding whether to implement these changes and whether to change employer contribution strategies.

Age 60-63 Catch-Up Contributions

SECURE 2.0 gives plans the option to let participants ages 60 through 63 make extra catch-up contributions starting in 2025—adding $11,250 to the standard $23,500 contribution next year. (Other participants 50 and older can still make regular catch-up contributions of $7,500 in 2025.)

“Plan sponsors are not required to offer the super catch-ups, but in our experience, the vast majority of them have indicated they will offer them, and many of them have done the work to start doing that,” says Kirsten Hunter Peterson, vice president of workplace thought leadership at Fidelity Investments. “We recently did a survey, and this was the No. 1 discretionary provision of SECURE 2.0 that they wanted to offer.”

The Beck Group, a construction and architecture firm based in Dallas, and a 2024 PLANSPONSOR Plan Sponsor of the Year winner as HCBeck Ltd., scrambled to offer super catch-up contributions for 2025.

“We were kind of at the buzzer in making the decision about whether we were going to implement it for 2025,” says Elizabeth Haynie, a senior manager of benefits and well-being for the Beck Group. “We had a lot of meetings with our system administrators and payroll managers, and we did reach a consensus that we could change our configuration and make sure we were doing that accurately. Aside from the mechanics of it, it was an easy decision for us to make sure folks are saving as much as they can.”

The decision can be more complicated—and costly—for plans that match catch-up contributions, says Adam Tremper, a director of offer management for T. Rowe Price. He says 84% of their institutional clients are adopting the super catch-up in 2025, but some of the 16% that are not changing yet are plans that match catch-up contributions.

“That creates a different level of decision and discussion at the employer: Rather than a simple benefit to turn on or not, it becomes a treasury question,” he says. Those plan sponsors are studying how much the super catch-up could cost them in match money before deciding how to offer it. “Some could elect to only match catch-up contributions up to certain limits. Some may not match the expanded catch-up.”

Depending on the calculations, it may be rare for the super catch-ups to affect employer contributions, except for some of the highest-paid employees or for plans with incredibly generous match rates, says Matthew Hawes, a partner in the employee benefits and executive compensation practice at Morgan, Lewis & Bockius LLP.

Roth Catch-Up Requirement for High Earners

SECURE 2.0 requires participants age 50 or older who earned at least $145,000 in wages in the previous year to make their catch-up contributions to a Roth account, rather than a pre-tax account. This provision applies to all catch-up contributions, not just super catch-ups. It was originally scheduled to take effect in 2024 but has been delayed until 2026 to give plans more time to implement the change.

The Beck Group “put that on the back burner” while focusing on getting super catch-ups ready for 2025, says Haynie. In addition to making sure the systems are in place for the new requirement by 2026, she also wants to provide education about the long-term benefits of after-tax Roth contributions.

“We want to create an outreach campaign leading up to 1/1/26 to folks that have a salary that would potentially be impacted,” says Haynie.

She also considers this a good opportunity to engage the financial consultant Beck Group offers as part of the company’s financial wellness program to host information sessions and one-on-one discussions with employees.

Roth Employer Contributions

The Roth 401(k) catch-up requirement does not specifically affect employer contributions. But some plans are implementing the change in tandem with an optional provision of SECURE 2.0: Roth employer contributions.

Employer contributions are typically pre-tax, but plans can now give participants the option to receive their match as an after-tax contribution to a Roth.

Administering this provision can be complicated, because the employer contributions become taxable income, and it was unclear whether they would be reported to the IRS on a W-2 or 1099 tax form. The IRS issued guidance in December specifying that plan participants who choose to have matching contributions made to a Roth account, rather than pre-tax, will receive a 1099 reporting that income.

“Once we got that clarity, we could begin service and roll out to plan sponsors,” Tremper says. “Sponsors are effectively able to maintain existing payroll processes and shift the burden of tracking the taxable amounts and generating the associated tax reporting, the 1099, to recordkeepers.”

T. Rowe Price currently has about 80 plans scheduled to adopt the Roth match in January 2025, and several others are interested in implementing it later in the year, he says.

Student Loan Repayment Match

The biggest SECURE 2.0 change affecting employer contributions now is the option to count student loan repayments as employees’ retirement plan contributions when determining the match. The Beck Group is hoping to implement that provision within the next year.

“We definitely have thought about the recruiting potential of being able to offer something like this, because we know it is such a concern for employees coming right out of school,” Haynie says. “People who may be five to 10 years into their loan may also benefit.”

The Beck Group will continue to match 100% of employee contributions up to 6% of income and automatically enroll participants at 6% to receive the full match. But if someone decreases their deferral to less than the 6% maximum and instead uses that money to pay back eligible student loans, they will still qualify for the full match.

“The reason why we liked that vs. just giving them money toward loan repayment is: This keeps them engaged in retirement savings,” Haynie says.

The IRS issued guidance in August specifying that student loans in an employee’s name used for their education, their spouse’s education or their dependents’ education can qualify. The guidance also specified that the loan repayment could be self-certified, but plan sponsors still have questions.

“People are confused about whether they need a vendor to help with this, how much are they charging, and is it worth it?” says Elizabeth Dold, a principal in Groom Law Group.

“This is real money that employers wouldn’t otherwise be shelling out unless it’s legitimate,” she says. “I think many of the employers are more comfortable working with a vendor that can do some due diligence to make it streamlined.”

Republican AGs Allege Asset Managers Misled Investors in Coal Stock

11 states accused BlackRock of offering coal funds while undercutting the industry and both State Street and Vanguard of suppressing coal production.

Eleven states filed a complaint against BlackRock Inc., State Street Corp. and the Vanguard Group Inc. for allegedly both working to constrict coal markets through anti-competitive practices and misleading investors in funds that do not take environment, social and governance factors into consideration.

Attorney generals from the 11 states filed the complaint in U.S. District Court for the Eastern District of Texas, Tyler Division, on Wednesday, with lead representation from the Buzbee Law Firm, based in Austin, Texas.

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The states allege that the asset managers took “substantial” holdings in U.S. coal companies, which they leveraged to press the companies to focus on green energy goals. The plaintiffs also claim that the asset managers used positions in organizations such as the Climate Action 100+ and the Net Zero Asset Managers Initiative to signal their work to reduce coal output, which the plaintiffs allege led to cost increases for coal-powered electricity.

“For the past four years, America’s coal producers have been responding not to the price signals of the free market, but to the commands of Larry Fink, BlackRock’s Chairman and CEO, and his fellow asset managers,” the complaint states in its opening. “As demand for the electricity Americans need to heat their homes and power their businesses has gone up, the supply of the coal used to generate that electricity has been artificially depressed—and the price has skyrocketed.”

The lawsuit is led by Texas Attorney General Ken Paxton and includes the attorneys general of Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming. The plaintiffs are seeking billions in damages, according to a press release by the Buzbee law firm.

In the complaint, the attorney generals also call on the asset managers to divest their investments in coal company stock and for the firms to be restrained from any further “deceptive, or misleading acts or practices” related to the positioning of funds.

State Street and Vanguard did not immediately respond to request for comment.

BlackRock said via emailed statement that its holdings in energy companies are regularly reviewed by regulators and that “we make these investments on behalf of our clients, and our focus is on delivering them financial returns. The suggestion that BlackRock has invested money in companies with the goal of harming those companies is baseless and defies common sense. This lawsuit undermines Texas’ pro-business reputation and discourages investments in the companies consumers rely on.” 

Per the complaint, BlackRock, Vanguard and State Street held $108.787 billion, $101.119 billion and $35.736 billion in coal investments, respectively, as of February 15, 2022.

Clayton Act

For its key argument, the complaint cites Section 7 of the Clayton Antitrust Act of 1914, which prohibits the acquisition of stock when “the effect of such acquisition may be substantially to lessen competition.”

By having substantial holdings in coal companies, the complaint alleges that the asset managers “acquired the power to influence the policies of these competing companies and bring about a substantial lessening of competition in the markets for coal.”

According to the attorneys general, as publicly traded coal companies have reduced output, smaller, private companies have increased production. Those firms, according to the complaint, struggle to meet the demand and cannot get the financing and loans needed to increase capacity.

The complaint details the public companies in question, such as Peabody Energy, NACCO Industries and Warrior Met Coal, and the percent of shares held by the asset managers: 30.43%, 10.85% and 31.62%, respectively, as of June 30.

The plaintiffs refer extensively to public comments by high-level executives at the asset managers, including Fink, regarding the promotion of efforts to reduce carbon dioxide emissions and increase the market share of the clean energy industry. The complaint also notes stock voting positions the firms took that allegedly supported reductions in output and calls for company climate disclosures.

Clean Energy Initiatives

The complaint refers to all three firms joining the Net Zero Asset Manager Initiative, intended to reduce the CO2 emissions from coal more than 58% between 2020 and 2030. Vanguard withdrew from that initiative in 2022.

In addition, the complaint notes that BlackRock and State Street joined the Climate Action 100+, an organization whose stated goal is to reduce coal output by more than half by 2030. BlackRock and State Street eventually withdrew from the Climate Action 100+; Vanguard never joined.

Climate Action 100+ has more than 600 signatories, representing more than $68 trillion in assets under management. The Net Zero Asset Manager Initiative represents more than 325 signatories with $57.5 trillion in AUM.

In the complaint, the attorneys general also argue that BlackRock, in particular, misled investors who were seeking to invest in ”non-ESG” funds by using those holdings to advance its climate goals.

“In addition to joining with the other two major institutional asset managers to bring about a reduction in the output of coal, Defendant BlackRock went further—actively deceiving investors about the nature of its funds,” the complaint states. “Rather than inform investors that it would use their shareholdings to advance climate goals, BlackRock consistently and uniformly represented its non-ESG funds would be dedicated solely to enhancing shareholder value.”

Last year, 26 attorneys general filed a lawsuit seeking to overthrow the Department of Labor’s final rule permitting ESG factors to be used when selecting retirement plan investments. That lawsuit was dismissed by the U.S. District Court for the District of Northern Texas but is currently under appeal to the U.S. 5th Circuit Court of Appeals.

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