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Benefits February 3, 2025
SECURE 2.0: What’s Effective This Year and What Plan Sponsors Need for 2026
While implementing SECURE 2.0 provisions effective 2025, plan sponsors prepare for a big change next year.
Reported by Kimberly Lankford
Art by David Plunkert
Several mandatory and optional provisions of the SECURE Act 2.0 of 2022 take effect this year, and recent IRS guidance has helped clarify some of the issues. Meanwhile, plan sponsors are also gearing up for a big change in 2026.
Here’s what to know for 2025 and beyond:
Mandatory Auto-Enrollment for New Plans
Starting on January 1, new 401(k) and 403(b) plans must automatically enroll employees at 3% of pay and increase their contributions by one percentage point per year, up to at least 10% but no more than 15%.
Recent IRS proposed guidance clarified which plans are subject to the auto-enrollment requirement, which is more complicated than originally expected.
“Since the effective date is 2025, a lot of us thought it would be new plans in 2025, but it was retroactive—any plan [launched] post-enactment of the law,” says Kirsten Hunter Peterson, vice president of workplace thought leadership for Fidelity Investments.
The provision applies to new plans created since December 29, 2022.
“There are some carve-outs that are excluded—10 or fewer employees and any employer that hasn’t been around for at least three years has a grace period, and church and government retirement plans are exempt from this, too,” Hunter Peterson says.
Employees who already made a deferral election do not need to be auto enrolled – even if the election was to defer 0% of salary.
“We had newer plans that were established after that date that added auto-enroll, and we needed to look and see if they met the requirements,” says Kelly Rome, head of product development and management with Empower. “We have a lot of smaller plans, startup businesses, and it’s something that is going to be ongoing. Companies that have operated for less than three years are not required to add automatic enrollment and escalation until the company’s third anniversary. So for any new companies, we will do an annual reminder asking them to confirm if they still meet one of the exceptions.”
Long-Term, Part-Time Employees
The Setting Every Community Up for Retirement Enhancement Act of 2019 expanded 401(k) eligibility for long-term, part-time employees and made employees who have worked at least 500 hours in each of the past three years eligible to contribute to the plan.
“Part-time workers are disproportionately women, younger folks and older folks who are working a part-time job before they retire,” says Peterson. “We know there’s a lot of underrepresented groups who are part-time workers, and Congress wanted to make sure those workers weren’t left behind.”
SECURE 2.0 shortened the required years of service for long-term, part-time workers to be eligible to contribute to their employer’s plan for plan years beginning after December 31, 2024. SECURE 2.0 also expanded these coverage rules to 403(b) plans that are subject to the Employee Retirement Income Security Act.
“Part-time employees who have completed at least 500 hours of service in each of two consecutive 12-months periods and are age 21 or older must be allowed to participate in 401(k) and ERISA-covered 403(b) plans,” says Tim Rouse, executive director of the SPARK [Society of Professional Asset-Managers and Recordkeepers] Institute.
Rather than keeping track of the hours, some plans decided to expand participation to all part-time employees.
“When they started to think about what they may need to do to track all of this, they said we have a small number of part-time employees; just let them into the plan,” says Rome. But it can be more complicated if the company has a lot of part-time employees and an employer match. “That’s different, because there could be a big financial impact.”
In that case, you need to track hours.
“We know who is in this space, and we’ve been able to get out in front of folks with tracking these hours on a year-by-year basis,” says Gregg Holgate, head of in-force management and client engagement for Transamerica.
Super Catch-Up Contributions
The super catch-up is a popular optional provision that first took effect in 2025. In years when plan participants turn age 60 through 63, they can make extra catch-up contributions—$11,250 rather than the standard catch-up contribution of $7,500 for people 50 or older in 2025. Adam Tremper, head of retirement platforms for T. Rowe Price, says 84% of its plans have adopted the super catch-up.
Eligible employees jumped at the chance to increase their contributions at Midwest Radiology in Roseville, Minnesota. Everyone who was eligible opted in, according to Barry Lindo, chief human resources officer.
“They were very excited,” says Lindo. “The people who weren’t excited were those that were a touch too old to participate.”
Plans need to work with their payroll provider to keep track of who turns 60 through 63 each year. People who turn 64 before year-end are not eligible for the extra catch-up.
Mandatory Roth Catch-Up Contributions for High Earners
One of the biggest issues plan sponsors are dealing with this year is a provision that takes effect in 2026. It requires that people at least 50 years old whose prior-year Social Security wages from an employer sponsoring the plan exceeded $145,000 make catch-up contributions to a Roth account, rather than a pre-tax account.
The IRS proposed guidance in January that included some important clarifications. For example, the $145,000 is based on prior year FICA earnings with the same employer that sponsors the plan to which the catch-up contributions are made, says Rome. The plan sponsor does not need to track down income with a previous employer. It also does not apply to people who do not pay FICA taxes.
“A lot of our government clients do not have FICA earnings—they do not pay into Social Security—so they were happy, because they are not subject to that,” Rome says.
The new rule calls for plan sponsors and their providers to collect data quickly at year-end.
“It requires integration between the plan sponsor and their payroll to identify that group of employees with FICA wages in excess of $145,000, and to do that as soon as possible by the end of the year so Principal can set a flag on our recordkeeping system to make sure those people are restricted from making pre-tax catch-up elections” in the new year, says Sondi Johnson, a senior relationship director with Principal Financial Group, Midwest Radiology’s recordkeeper. “There is definitely some complexity with that quick turnaround after the year-end to identify that employee group.”
Recordkeepers had been concerned about what happens to pre-tax catch-up contributions mistakenly made very early in the year, before the previous year’s W-2 earnings are finalized, says Rouse.
“SPARK’s recommendation to [the Department of the] Treasury was to deal with these last-minute W-2 changes by reclassifying pre-tax catch-up contributions as Roth and producing a 1099-R for the taxpayer. The recent response by Treasury, through its proposal on the Roth catch-up requirement, appears to agree with this process as an option.”
Education will be important, even with a plan like Midwest Radiology in which Roth contributions are already popular, says Johnson.
Otherwise, employees may not see the benefits of after-tax contributions. “You don’t want people not doing the catch-up because they don’t want the tax taken out right away,” says Kevin Crain, the executive director of the Institutional Retirement Income Council.
