Key Changes for 2025: Catch-Up Contributions, Automatic Enrollment, and Expanded Eligibility

SECURE 2.0: A Game-Changer for Retirement Plans

Described as the “most extensive set of changes to retirement law in the last 15 years”, the SECURE 2.0 Act promises to reshape the retirement landscape for employers and employees alike. According to the Urban Institute, the number of workers with access to employer-sponsored retirement plans could jump from 39.8 million to as many as 64.6 million after SECURE 2.0 takes full effect. Here’s a breakdown of three significant changes that become effective in 2025:

1. Increased Catch-Up Contributions for Ages 60-63

Starting in 2025, employees aged 60 to 63 can make supercharged catch-up contributions to their retirement plans. They’ll be allowed to contribute an additional $11,250 on top of the standard limit of $23,500 for 2025. This provision aims to give workers nearing retirement age a much-needed boost to their savings.

Additionally, for high earners (those making $145,000 or more in the previous year), all catch-up contributions will need to be made to Roth accounts starting in 2026. While this change was initially set to become effective in 2024, the delay provides employers with more time to adapt their plans accordingly.

2. Automatic Enrollment Mandate for New 401(k) Plans

To increase participation rates, SECURE 2.0 requires most new 401(k) plans established on or after December 29, 2022, to implement automatic enrollment by 2025. Here’s how it works:

• Default Contribution Rate: Employees will automatically be enrolled to contribute between 3% and 10% of their wages, depending upon the terms of their employer’s plan, unless they opt out or select a different rate.
• Rate Escalation: The default contribution rate will increase by at least 1% annually, up to a cap of 10% or 15%.
• Flexibility for Employers: New businesses (less than three years old) and small businesses (fewer than 10 employees) are exempt from this mandate.

Automatic enrollment aims to simplify retirement saving and reduce the number of employees missing out on employer-sponsored plans.

3. Expanded Eligibility for Part-Time Workers

SECURE 2.0 builds on previous legislation to ensure more part-time employees can access retirement benefits. Starting in 2025, long-term part-time employees who work at least 500 hours for two consecutive years must be eligible to participate in their company’s 401(k) or 403(b) plan. This change is a significant win for part-time workers who have historically been excluded from these benefits. Read more about the eligibility for long-term, part-time employees here.

What This Means for Employers

Employers need to prepare now to implement these changes. Key steps include:

1. Reviewing Contribution Limits: Ensure systems are ready for the increased catch-up limits.
2. Adapting for Automatic Enrollment: Assess if your plan falls under the automatic enrollment mandate and update policies as needed.
3. Updating Eligibility Rules: Include long-term part-time employees in your retirement plans starting in 2025.

Preparing for a Secure Future

SECURE 2.0 offers a clear path to improved retirement security for millions of workers. By expanding access, increasing contributions, and simplifying participation, this legislation is a crucial step forward in helping Americans achieve a financially secure retirement.

Employers who stay ahead of these changes will not only remain compliant but also position themselves as leaders in supporting employee financial wellness. Connect with RMC Group today to ensure your retirement plans are ready for SECURE 2.0 and to explore tailored solutions that meet your business’s needs. Our Retirement Professional are here and ready to help at 239-298-8210 or rmc@rmcgp.com.