business How SECURE 2.0 Is Reshaping 401(k) Plans: Key Changes Employers Need to Know in 2025 February 27, 2025 Big changes are coming for 401(k) plans in 2025! SECURE 2.0 expands access, updates contribution rules, and more—make sure your business stays compliant. Here’s what you need to know. SECURE 2.0 brings important updates for 401(k) plans. From expanding eligibility to part-time employees to new contribution rules, here’s what employers need to know to stay compliant. We outline key provisions going into effect for 2025 below:ProvisionDescriptionEffective DateMandatory or OptionalAutomatic enrollment for new retirement plans (§ 101)Requires new 401(k) plans established after December 29, 2022, to automatically enroll participants in the respective plan upon becoming eligible and include auto-escalation provisions unless an exception is met (i.e. small businesses with 10 or fewer employees or companies that have been in business for less than 3 years). All 401(k) plans established prior to December 29, 2022 are grandfathered and are not required to adopt this provision. Under Section 101, the initial automatic enrollment amount must be at least 3%, but not more than 10%. Each subsequent year, that amount must be increased by 1% until it reaches at least 10%, but not more than 15%.Plan years beginning after December 31, 2024MandatoryImproving coverage for part-time workers (§ 125)Requires employers to allow long-term part-time (LTPT) employees to participate in the employers’ 401(k) Plan. LTPT employees will become eligible to participate in a 401(k) plan if they have completed at least 500 hours of service in each of two consecutive 12-month periods and have attained age 21 by the end of the second 12-month period.Plan years beginning after December 31, 2024MandatoryHigher catch-up contributions for ages 60–63 (§109)Raises the annual age-based catch-up contribution limit to the greater of $10,000 or 150% of the regular age 50+ catch-up limit. The higher catch-up amount applies at ages 60, 61, 62 and 63. The limit on catch-up contributions for 2025 is $7,500. Section 109 increases this limit to the greater of $10,000 or 150% of the regular catch-up amount in 2025 ($11,250) for individuals who have attained ages 60, 61, 62 and 63.Taxable years beginning after December 31, 2024OptionalStudent loan payments treated as elective deferrals for the purpose of matching contributions (§110)Allows employers to make matching contributions based on the employee’s qualified student loan payments.Plan years beginning after December 31, 2024Optional What should plan sponsors do to prepare for these changes? While formal amendments are not immediately required, plans must be updated to incorporate any changes related to SECURE 2.0 by December 31, 2026. It is crucial for plan sponsors to proactively collaborate with their third-party administrators to navigate these changes and ensure the plan operates in compliance with the new requirements even though amendments are not yet required. Additionally, it is important to document all decisions made in anticipation of formal amendments and to communicate relevant changes to employees in a timely manner.
