Understanding SECURE 2.0 Changes for 2025

The SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement Act 2.0) passed in December 2022, builds upon the original SECURE Act of 2019 to improve retirement savings opportunities for Americans. Its primary goals are to increase participation in retirement plans, enhance savings rates, and simplify plan administration. Starting in 2025, the Act introduces several key provisions, including mandatory auto-enrollment for certain employer-sponsored plans and updated rules for catch-up contributions. These changes aim to ensure a more inclusive and effective retirement system, with provisions tailored to different employee demographics.

Auto-Enrollment Changes

Beginning in 2025, newly established 401(k) and 403(b) plans must include automatic enrollment for eligible employees. Unless employees opt out, they will be enrolled at an initial contribution rate of at least 3% of their pay, which will automatically increase by 1% annually until it reaches at least 10%. Exemptions include plans established before December 29, 2022, small businesses with fewer than 10 employees, and certain church and governmental plans.

It’s important to note that the employer match does not also increase by 1% annually. Moreover, if the employer caps their match at 5% of pay, they are not required to increase the match to align with the higher employee contributions mandated by auto-enrollment. For example, if an employee contributes 10% of their pay under the automatic escalation rules, the employer’s match will still be limited to 5%, according to the terms of the plan.

Recent guidance from the IRS clarified that the auto-enrollment mandate applies universally to all eligible participants in applicable plans. Employers are expected to follow a "reasonable, good faith interpretation" of the law until final regulations are released. These regulations aim to provide detailed guidance to ensure proper implementation and are proposed to apply to plan years beginning six months after their finalization.

Catch-Up Contribution Changes

Workers aged 50 or older by the end of the calendar year qualify to make catch-up contributions, even if they turn 50 on December 31. Catch-up contributions provide a way for older employees to boost their retirement savings, especially if they were unable to save consistently earlier in their careers. This can help individuals close the gap between their current savings and their desired retirement goals.

Catch-up contribution limits vary depending on the participant's age, with specific enhancements for those nearing retirement. Individuals aged 50 to 59 and those aged 64 or older can make an additional catch-up contribution of $7,500 to their 401(k) or similar retirement plans, on top of the standard contribution limit. However, for participants aged 60 to 63, the SECURE 2.0 Act introduces an increased catch-up limit of $11,250, providing these workers with an opportunity to maximize their retirement savings during this critical stage of their careers. These limits ensure greater flexibility and support for those in different phases of retirement planning.

In 2025, employees aged 50 and older will continue to have the option of making catch-up contributions above standard retirement plan limits. However, starting in 2026, employees earning over $145,000 annually must make these contributions as after-tax Roth contributions. Lower-income earners will still have the option of making traditional, pre-tax catch-up contributions.

Requiring higher-income earners (those making over $145,000) to make catch-up contributions as after-tax Roth contributions generates immediate tax revenue for the government. Unlike pre-tax contributions, which defer taxes until withdrawal, Roth contributions are taxed upfront.

The IRS emphasized that plans cannot require all participants to use Roth contributions, ensuring flexibility for employees earning $145,000 or less. Additionally, plans that implement Roth catch-up contributions must treat these amounts as taxable income and maintain them in designated Roth accounts. This guidance aims to balance administrative simplicity with equitable access to contribution options.

Additional Resources: 

• Brokers’ Corner Podcast—watch and subscribe to the Brokers’ Corner podcast, which dives into the topics that affect your agency and industry and identifies strategies so you can protect and grow your book of business 
• BerniePortal Brokers’ Council—a council of benefits brokers from across the country that advises BerniePortal on industry concerns, trends, and the ways technology can best support their agency and employer groups 
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