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Key Takeaways
- SECURE Act 2.0 is the most comprehensive U.S retirement law in over seventeen years, adding more to the already-full plates of human resources professionals.
- Although most private employers do not have to adopt these retirement plan amendments to implement either mandatory or discretionary amendments until the end of 2026, several provisions are effective before the amendment deadline.
- If you sponsor a 401(k) or 403(b) plan, you have the legal responsibility to comply with SECURE Act 2.0’s mandatory provisions once they’re effective, whether your plan has been amended yet or not.
- For any discretionary provisions, you should decide whether to adopt them based on your employee population and plan utilization.
On December 29, 2022, U.S. President Joe Biden signed the Consolidated Appropriations Act of 2023 into law, which was a $1.65 trillion omnibus spending bill. That bill contained over 90 retirement plan provisions, referred to as SECURE Act 2.0 of 2022, further building upon the Setting Every Community Up for Retirement Enhancement Act of 2019.
SECURE Act 2.0 is the most comprehensive U.S. retirement plan law in over seventeen years, adding more to the already-full plates of human resources professionals. Although most private employers do not have to adopt plan amendments to implement either mandatory or discretionary amendments until the end of 2026, several provisions are effective before the amendment deadline.
In this article, we address the top 10 SECURE Act 2.0 provisions that apply to most retirement plan sponsors and how they impact your compliance strategies.
1
Increased Catch-Up Contributions
Currently under the law, employees aged 50 years and older may make catch-up contributions above their standard deferral contribution amounts. For example, in 2024, employees can defer up to $23,000 into both 401(k) and 403(b) plans. If the employee is 50 years or older, that employee can contribute an additional $7,500 to their 401(k) or 403(b) plan, for a total of $30,500 annually, if permitted by the plan.
Beginning in 2025, catch-up contributions for employees aged 60 to 63 shall increase to the greater of:
- $10,000 maximum annually or
- 150% of the catch-up amount designated for the previous plan year (which is indexed for inflation annually).
2
Roth Catch-Up Contributions for Certain Employees
Beginning in 2026, employees that make more than $145,000 in the previous calendar year will be required to make their catch-up contributions as after-tax Roth contributions. This means that these employees will no longer be able to take a tax-deduction on catch-up contributions. However, since these are Roth contributions, the employees will take their Roth contributions tax-free when they are withdrawn from the plan.
For those employees making less than $145,000 in the previous calendar year, they may continue making pre-tax catch-up contributions.
This provision is mandatory for all retirement plans that permit catch-up contributions. Employers must amend their plans to implement this change.
3
Updated Limits for Mandatory Distributions
Under current law, employers may distribute former employees’ retirement plan balances if the former employee’s balance is $5,000 or less. Under SECURE Act 2.0, employers may increase this limit from $5,000 to $7,000.
Although this is a discretionary provision, the recordkeeper of your retirement plan may require this change. This increased limit is effective for mandatory distributions occurring after December 31, 2023.
4
Employer Roth Matching and Nonelective Contributions
Before SECURE Act 2.0, employers could only make matching and nonelective contributions on a pre-tax basis, not on a Roth basis. A nonelective contribution is an employer contribution to the retirement plan where the employer contributes a certain percentage of each plan participant’s compensation, thus differing from a matching contribution.
If you make any contributions after December 29, 2022, the employer may permit plan participants to elect that matching or nonelective contributions be made as after-tax Roth contributions instead of as pre-tax contributions.
This is a discretionary plan design change; it is not mandatory. However, if employers implement this plan change, then these Roth contributions must be fully vested and not subject to forfeiture.
5
Part-Time Employee Eligibility
Before SECURE Act 2.0, the law required that 401(k) plans must permit employee contributions for workers who:
- Worked at least 500 hours annually (but no more than 999 hours) annually for at least three consecutive years; and
- Are at least 21 years of age by the end of the three-year period.
This previous law became effective on January 1, 2021. This means that any employees who worked 500 hours annually between January 1, 2021, through December 31, 2023 (and have reached age 21 by December 31, 2023) must be permitted to contribute to your 401(k) plan, unless they are otherwise excluded by the plan.
SECURE Act 2.0 shortened this time period from three years to two years and extended these rules to 403(b) plans, effective January 1, 2023. So, in this case, for any employees who have worked at least 500 hours annually (but no more than 999 hours annually) from January 1, 2023, through December 31, 2024 (and have reached age 21 on December 31, 2024), they must be allowed to contribute to their 401(k) or 403(b) plan on January 1, 2025 and thereafter, unless they are otherwise excluded by the plan.
These plan provisions are mandatory, and employers must amend their retirement plans to account for these changes.
6
Hardship Self-Certifications
Many 401(k) and 403(b) plans permit hardship distributions, allowing employees to take in-service withdrawals from their retirement plan in the event of an immediate and heavy financial need. Prior to SECURE Act 2.0, employees generally needed to provide evidence of the hardship to the employer to receive the withdrawal.
In this case, the employer had the legal responsibility to maintain sufficient documentation on the plan participants’ hardship needs. Failure to maintain this documentation properly could result in a compliance error.
After December 31, 2022, the SECURE Act 2.0 now permits retirement plans to rely on an employee’s self-certification on both the reason for the hardship and the amount needed (which cannot be in excess of the employee’s financial need).
Like many other SECURE Act 2.0 provisions, this hardship self-certification requirement is an optional plan design, requiring the employer to amend their retirement plan if they plan on implementing the provision.
7
Increased Required Minimum Distribution Ages
Required minimum distributions – or RMDs – are the minimum amounts that plan participants must withdraw from their retirement plans annually once they reach a certain age. Currently, employees must start taking withdrawals when they reach age 72.
SECURE Act 2.0 increases the RMD age from 72 to:
- 73 (for employees attaining age 72 after December 31, 2022, and age 73 before January 1, 2033), and
- 75 (for employees attaining age 74 after December 31, 2032)
This is also a discretionary change to your retirement plans; however, your plan’s recordkeeper may require this change.
8
Student Loan Payments Treated as Elective Deferrals for Matching Contributions
Before SECURE Act 2.0 became effective, 401(k) and 403(b) matching contributions could not be made to a participant’s retirement plan account based on the amounts of an employee’s student loan payments.
However, now, under SECURE Act 2.0, employers may treat student loan payments as an employee deferral to the retirement plan, meaning that you can make matching contributions based on those amounts.
These student loan matching contributions must be subject to the same vesting schedule as any other matching contributions, and the employee may designate these as Roth contributions. Additionally, you can rely on an employee’s certification stating that these student loan payments are being made.
This is a discretionary plan provision, effective for plan years beginning after December 31, 2023.
9
Mandatory Automatic Enrollment for New Plans
For new 401(k) and 403(b) plans established on or after December 29, 2022, SECURE Act 2.0 requires that you must auto-enroll employees at an initial employee contribution amount between 3% and 10% beginning on the first day of the 2025 plan year.
Then, this contribution amount is required to increase by one percentage point each year until the amount reaches 10% to 15%.
Although this automatic enrollment is required for newer plans, it does not apply to any retirement plans established before December 29, 2022. Additionally, it does not apply to new retirement plans for companies in business less than three years with 10 or fewer employees.
10
Plan Amendment Deadlines
Although many of these mandatory and discretionary provisions are already effective (or soon to be effective), you do not need to make formal plan amendments until December 31, 2026. For most collectively-bargained plans, the deadline is December 31, 2028, and for most governmental plans, the deadline is December 31, 2029.
Ensure Compliance with the Secure Act
If you sponsor a 401(k) or 403(b) plan, you have the legal responsibility to comply with SECURE Act 2.0’s mandatory provisions once they’re effective, whether your plan has been amended yet or not. Your retirement plan’s recordkeeper will more than likely help you with the timing and implementation of these changes; however, you hold the legal responsibility to comply.
For any discretionary provisions, you should decide on whether you want to adopt these provisions based on your employee population and plan utilization. If you do decide to adopt one or more optional provisions, check with your recordkeeper to start this process.
Want to learn more about SECURE Act 2.0’s impact on your retirement plan? Talk to one of our US compliance and HR specialists today.
Frequently Asked Questions
On December 29, 2022, U.S. President Joe Biden signed the Consolidated Appropriations Act of 2023 into law, which was a $1.65 trillion omnibus spending bill. That bill contained over 90 retirement plan provisions, referred to as SECURE Act 2.0 of 2022, further building upon the Setting Every Community Up for Retirement Enhancement Act of 2019.
SECURE Act 2.0 is the most comprehensive U.S retirement plan law in over seventeen years, adding more to the plates of human resources professionals.
Here are some top SECURE Act 2.0 provisions about which human resources professionals should be familiar:
- Increased catch-up contributions.
- Roth catch-up contributions for certain employees.
- Updated limits for mandatory distributions.
- Employer Roth matching and nonelective contributions.
- Part-time employee eligibility.
- Hardship self-certifications.
- Increased required minimum distribution ages.
- Student loan payments treated as elective deferrals for matching contributions.
- Mandatory automatic enrollment for new plans.
Author: Jennifer Kiesewetter
Jennifer is an HR and employment compliance specialist with more than 20 years experience as a transactional attorney, focused on employee benefits, retirement plans and health plans.