SECURE 2.0 Act — Changes Taking Effect Soon
The SECURE 2.0 Act of 2022 is a law designed to improve retirement savings options in the U.S. It builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. SECURE 2.0 was signed into law by President Biden on December 29, 2022, as part of the U.S. Congress “H.R.2617 – Consolidated Appropriations Act, 2023.” The changes take effect on a staggered timeline, which started on January 1, 2023, and completes in 2027. Listed below are some of the changes (as described in this article) that take effect next year in 2025 ─ which is only a couple of months away. We also include explanations from this discussion regarding how employees may be affected by the changes.
Automatic Retirement Plan Enrollment
Beginning in 2025, SECURE 2.0 requires employers to automatically enroll eligible employees in new 401(k) or 403(b) plans with a participation amount of at least 3% but no more than 10%. The contribution escalates at the rate of 1% per year up to a minimum of 10% and a maximum of 15%.
What This Means for Employees
If you’re not already contributing to your company’s retirement plan, look for information during open enrollment and adjust your contribution amount or opt-out if you’re not interested. Since the provision only applies to plans established after Dec. 28, 2022, your company may not be required to auto-enroll you in its retirement account.
New Rules for Old 401(k)s
The SECURE Act 2.0 directs the US Department of Labor to create a searchable database by Dec. 29, 2024, allowing workers to track down their old retirement accounts. The law also makes it easier for employers to “force” you out of their plan if you have a relatively low balance and leave your job.
What This Means for Employees
You don’t have to wait for the new database to go live to find old 401(k)s. You can use the Department of Labor’s Tax Form 5500 database to search for your past employer. Or, if your old company still exists, you could simply contact them to ask for the name of their plan administrator.
More 401(k) Access for Part-Time Workers
As originally defined in the SECURE Act, long-term, part-time workers are those who complete at least 500 hours of service in each of three consecutive years (not counting years of service before 2021). SECURE 2.0 reduces this time period from three years to two consecutive years, effective for plan years beginning after December 31, 2024.
What This Means for Employees
If you work part-time, you may want to keep track of your hours so that you won’t miss out on the chance to participate in your company’s retirement plan in the future.
Higher Catch-Up Limit
For taxable years beginning after December 31, 2024, the catch-up limit for participants who reach the age of 60, 61, 62, or 63 during such year is increased to the greater of $10,000 or 150% of the regular catch-up limit of $11,250 for 2025.
What This Means for Employees
If you turn any age between 60 and 63 next year, you will be allowed to deposit more money into your retirement account.
For more information on these and other provisions of the Secure 2.0 Act, contact your HR benefits specialist, the Internal Revenue Service, or your personal financial advisor.
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