Key SECURE 2.0 Act Changes Coming in 2025

The SECURE 2.0 Act of 2022 introduced substantial changes to retirement plan rules, aiming to broaden retirement savings opportunities. While many updates have already been implemented, several important provisions are scheduled to take effect in 2025. Below is an overview of these changes, which cover automatic enrollment, enhanced catch-up contributions, coverage for part-time employees, and the creation of a new retirement savings database.

Starting in 2025, all 401(k) and 403(b) plans established after December 29, 2022 must automatically enroll eligible employees in the plan through an eligible automatic contribution arrangement (EACA). Key details include:

• Initial Enrollment Rate: Employees will be enrolled at a contribution rate between 3% and 10% of their salary.
• Automatic Increases: The contribution rate will automatically increase by 1% annually until it reaches a minimum of 10% and a maximum of 15%. Certain businesses are exempt from this mandate:
  • Companies with 10 or fewer employees
  • Businesses with workplace retirement plans established before December 29, 2022
  • Companies operating for less than three years

EACAs must allow employees to withdraw automatic contributions (and any earnings) within 90 days of the first contribution without facing the standard 10% penalty on early withdrawals. Additionally, employers must provide plan details to employees, including contribution rates, opt-out procedures, and investment options.

The SECURE 2.0 Act allows 401(k), 403(b), and governmental 457(b) plans to offer higher catch-up contributions for participants aged 60 to 63:

• Increased Limit: In 2025, eligible individuals may contribute the greater of $10,000 or 150% of the regular catch-up limit, adjusted for inflation.
• Projected Catch-Up Limits: The regular catch-up limit for those under age 60 is expected to be around $7,500, while those aged 60-63 can contribute approximately $11,250. While not required, plan sponsors may opt to amend their plans to include this enhanced catch-up option, alongside the existing catch-up contributions for participants age 50 or older.

The SECURE Act of 2019 initially provided eligibility for long-term part-time (LTPT) employees, with the first eligible employees joining plans in 2024. SECURE 2.0 builds on this by lowering eligibility thresholds and extending this benefit to ERISA-covered 403(b) plans:

• New Requirements: Beginning in 2025, LTPT employees who complete 500 hours of service in each of two consecutive 12-month periods and have reached age 21 by the end of the second period will be eligible to participate in 401(k) or ERISA-covered 403(b) plans. This change aims to support the retirement savings of part-time employees who may have previously been excluded from workplace retirement plans.

SECURE 2.0 also mandates the creation of an online, searchable database to help participants and beneficiaries track down their retirement benefits. This tool, developed by the U.S. Department of Labor (DOL), will be designed to locate contact information for plan administrators of plans in which individuals may have benefits.

The DOL faces a statutory deadline of December 29, 2024, to roll out this database. However, industry groups have recommended delaying the launch or implementing an interim solution, citing concerns about the risk of false positives (e.g., outdated records indicating potential benefits that have already been distributed). This database could become an invaluable resource, helping participants reconnect with lost benefits and plan administrators.

The upcoming provisions in the SECURE 2.0 Act underscore the government’s commitment to enhancing retirement security. From mandatory automatic enrollment and increased catch-up limits to expanded eligibility for part-time employees and a centralized retirement savings database, these changes promise to streamline retirement planning and make retirement savings more accessible.

Find an Oppenheimer financial professional near you if you would like to discuss these changes in further detail or need assistance planning for the future.