The SECURE 2.0 Act, signed into law on December 29, 2022, ushers in significant changes to retirement plans across the U.S. Its purpose: to increase retirement security by expanding plan access and encouraging greater savings. Below is a breakdown of the Act’s key provisions and how they impact HR and payroll pros; we focus on contributions, enrollment, and new retirement plan features.
Contribution Changes for 401(k), 403(b), and 457(b) Plans
The SECURE 2.0 Act introduces higher contribution limits for 2025 and other changes to retirement plans, making it easier for employees to save more for retirement.
Contribution Limits for 2025
- Standard Limit: $23,500
- Catch-Up Contributions:
- Age 50+ and 64+: $7,500
- Age 60-63: $11,250
- 403(b) Special 15-Year Rule: $3,000
Roth Option for Employer Contributions
Employees can elect to have their employer matching contributions made on a Roth (after-tax) basis, where applicable.
- Employer Actions: Employers must update their plan documents to allow Roth matching.
- Tax Implications: Roth employer contributions are taxable income for the employee, and a 1099-R form will be issued.
Changes for SIMPLE IRAs
The SECURE 2.0 Act enhances SIMPLE IRAs by allowing for greater contribution limits, making them more attractive to employers and employees alike.
2025 SIMPLE IRA Contribution Limits
- Standard SIMPLE IRA:
- Contribution Limit: $16,500
- Standard Catch-Up (50+ and 64+): $3,500
- Increased Catch-Up (60-63): $5,250
- Enhanced SIMPLE IRA:
- Contribution Limit: $17,600
- Standard Catch-Up: $3,850
- Increased Catch-Up (60-63): $5,250
Eligibility for Enhanced SIMPLE IRA
- Employers with 25 or fewer employees can adopt the enhanced contribution limits.
- Employers with 26 or more employees must provide a fully vested 4% matching contribution or a 3% non-elective contribution to qualify for the higher limits.
Employer Contributions
Employers can make an additional non-elective contribution of up to 10% of compensation, capped at $5,000, for employees earning at least $5,000. This is available even if the employer is making matching contributions.
Roth Option for SIMPLE IRAs
Employers can offer a Roth option to SIMPLE IRAs, allowing employees to make after-tax contributions.
Eligibility and Enrollment Provisions
The SECURE 2.0 Act expands eligibility and changes enrollment processes, providing more inclusive retirement savings options for workers.
Part-Time Employee Eligibility
Starting in 2024, part-time employees working at least 500 hours annually for two consecutive years will be eligible for 401(k) and 403(b) participation.
- Employer Contributions: Optional for these employees.
- Vesting: Service before 2023 does not count for eligibility but may be used for vesting purposes.
Automatic Enrollment in 401(k) and 403(b) Plans
New 401(k) and 403(b) plans must include automatic enrollment starting in 2023.
- Grandfather Clause: Older plans are exempt.
- Automatic Enrollment Rates: Initial enrollment between 3-10% of pay, with an automatic increase of 1% annually up to a maximum of 10-15%.
- Opt-Out: Employees can opt-out or change contribution rates.
- Exemptions: SIMPLE IRA plans, small businesses (10 or fewer employees), new businesses (under 3 years), church plans, and government plans are exempt. However, once a business exceeds 10 employees, automatic enrollment is required one year later.
Financial Incentives for Plan Enrollment
Effective for plan years beginning after December 31, 2022, employers are permitted, but not required, to offer their employees de minimis financial incentives for participation in 401(k) and 403(b) plans.
- IRS Notice 2024-2 which was released on December 20, 2023, provides significant guidance for employers in implementing this practice including several Q and A’s addressing various scenarios.
- Employers may offer de minimis financial incentives, which cannot exceed $250 in value, and must not come from plan assets;
- Incentives may only be offered to employees that do not have a deferral election in place, and must be offered to all nonparticipating employees, as opposed to specific individuals or groups.
- The incentives may be distributed in installments contingent on the employee continuing to defer.
- Incentives constitute remuneration that is includible in the employee’s gross income and wages and will be subject to applicable withholding and reporting requirements for employment tax purposes unless an exception applies. Note: gift cards are not excludable from the employee’s gross income as a de minimis fringe benefit because they are considered a cash equivalent.
Student Loan Matching Contributions
A new provision allows employers to match student loan repayments with retirement plan contributions. This option benefits employees who may be paying off student loans but want to save for retirement.
Key Details
- Eligible Plans: Includes 401(k), 403(b), SIMPLE IRAs, and 457(b) plans.
- Voluntary Feature: Employer participation is optional but must be made available to all employees eligible for matching contributions based on elective deferrals.
- Certification: Employees must certify their student loan payments as qualifying.
- Plan Amendments: Employers must update their plans to offer this option.
Contribution Limits
QSLP matches are subject to annual contribution limits and reduce the amount of elective deferrals for the year.
Claim Deadlines
Employers can set annual or quarterly deadlines for claiming QSLP matches, ensuring they are reasonable.
Employers may access additional information and details in interim guidance issued by the IRS in Notice 2024-63 which is presented in Q and A format.
By streamlining the SECURE 2.0 provisions and adding new features like student loan matching and automatic enrollment, the Act aims to make retirement savings more accessible and robust. Employers and HR professionals will need to stay informed about these changes to ensure their retirement plans remain compliant and optimized for employee participation.