The SECURE 2.0 Act was signed into law on December 29, 2022, and contains several provisions that dictate how employers must offer and administer retirement plans. While Secure 2.0’s provisions are expansive and have different effective dates ranging into 2025, there are some major changes that are worth considering:
Automatic Enrollment in Retirement Plans: Beginning in 2025, new 401(k) and 403(b) plans must automatically enroll participants at a contribution rate between 3% and 10%, with a 1% increase up to the maximum each year. Exemptions from these requirements include existing plans, plans with employers who have existed for less than three years, and employers with 10 or fewer employees.
Minimum Distribution Age: The minimum distribution age has changed from 72 to 73, and will increase to 75 starting in 2033.
Catch-Up Limits: Beginning in 2025, catch-up contribution limits have increased for individuals aged 60 to 63, to either $10,000 or 150% of the regular catch-up amount for 2024, whichever is greater.
Student Loan Payments as Contributions for Matching: After December 31, 2023, employers may make retirement plan matching contributions that correspond to a participant’s “qualified student loan payment.” A qualified student loan payment is defined as indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.
De Minimis Financial incentives for 401(K) for Retirement Participation: Effective now, employers may offer de minimis (minimal) financial incentives to employees who participate in retirement plans, such as low-value gift cards.
Emergency Withdrawals: After December 31, 2023, as much as $1,000 per year may be withdrawn from a retirement plan without paying an early withdrawal tax if the withdrawal is for a qualifying emergency. The withdrawn amount may then be replaced over the course of a three-year period, and no more emergency withdrawals may be made until that money is paid back or the three years have elapsed.
Coverage for Part-Time Workers: Beginning in 2025, part time workers with 2 years and at least 500 hours of service may participate in their employer’s 401(k) plan. This expands the former 3-year service requirement. Part-time employees with 1 year of service may still participate if they have served 1,000 hours.
These are just a selection of the extensive provisions of SECURE 2.0, which will take effect over the course of years.
