Secure 2.0 Act

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Changes are coming to U.S. retirement plans, some mandatory and some optional. And they’ll have significant implications for employers and employees. For employers, you’ll need to understand new employee classifications, ensure your payroll provider or manager is ready to account for these changes, and then communicate them to your employees. Let’s look at what you need to know and do to prepare for changes in how your 401(k) plan will be managed and who can participate, so that everyone gets the most out of a key benefit you offer your employees.

The SECURE 2.0 Act, an expansion of the SECURE Act of 2019, was signed into law at the end of 2022 and includes more than 90 retirement plan provisions. Some changes went into effect immediately, while others will be implemented over the next few years. If you’re an employer, as plan sponsor, you need to be aware of these changes and be ready to act on them.

Two major changes involve long-term, part-time employees and Roth catch-up contributions.

Long-term, part-time employees

Under the SECURE Act of 2019, 401(k) plan sponsors (employers) must allow eligible long-term, part-time (LTPT) employees to make 401(k) contributions — effective for your 2024 plan year.

This means that employees who complete at least 500 hours of service in three consecutive 12-month periods, and who satisfy your plan’s age requirement, can make contributions to your 401(k) plan, becoming plan participants. However, you aren’t required to make matching or other nonelective contributions for LTPTs.

Under SECURE 2.0, this will change again in 2025 — employees who complete at least 500 hours of service in two, not three, consecutive 12-month periods will satisfy your plan’s service requirement.

This provision helps more employees access the benefit you offer so they can get on the path to retirement.

Roth catch-up contributions

This SECURE 2.0 provision was initially set to take effect in 2024. However, the IRS recently announced that it’s pushed that date to 2026.

Traditionally, most plans allow for catch-up contributions, which are additional 401(k) contributions made by employees who are at least 50 years old and who have exceeded the federally mandated contribution limit for that year. These limits are subject to change each year.

For instance, eligible employees who exceed the $22,500 limit for 2023 are allowed to contribute an additional $7,500 this year.

However, starting in 2026, employees who earn more than $145,000 in FICA wages from your business in the prior year can only make these catch-up contributions on a Roth (after-tax) basis.

In the absence of additional guidance from the IRS, if your plan doesn’t currently allow Roth contributions, by 2026, you’ll need to either:

• add a Roth provision to your plan that will allow all eligible employees to elect Roth contributions by January 1, 2026, and high-paid employees’ catch-up contributions to continue
• remove your plan’s catch-up contribution provision.

Other important changes

While those are two of the biggest provisions you need to be aware of, the law includes many other changes that can help your employees reach their retirement goals. Additionally, SECURE 2.0 expands coverage by:

• Mandating auto-enrollment/auto-escalation for new plans to lower the participation threshold for employees
• Expanding tax credits to employers starting new plans for their employees
• Expanding the definition of long-term, part-time employment to increase participation

Increases contributions and plan balances by:

• Increasing catch-up limits for individuals 50 and older
• Allowing matching contributions for student loan repayments
• Changing the timing of required minimum distributions (RMDs) for 401(k) plans
• Updating mandatory distributions by changing the limit to $7,000

Allows greater participant access to their retirement assets for:

• Financial emergencies
• Domestic abuse victims
• Natural disasters
• Hardship — employers can allow employees to self-certify both the hardship reason and the amount needed

Expands Roth treatment by:

• Allowing employers to let employees elect Roth treatment for fully vested employer matches or nonelective contributions
• Not requiring lifetime RMDs from Roth accounts in plans.

The IRS and U.S. Department of Labor will continue to issue guidance about most of the changes outlined in the SECURE 2.0 Act.

This isn’t meant to be a comprehensive list — there are many changes included in SECURE 2.0. These provisions could provide a boost to the benefits package you use to help recruit and retain employees. Make sure you speak with your retirement plan and payroll providers about the changes so you’re prepared now and don’t have to make changes and cause processing headaches later. And don’t forget to communicate the new details with your employees so they’re taking full advantage of the benefits you’re providing them. For additional information, questions or even help communicating with your plan participants, contact your retirement plan provider.

Eric O’Donnell is a director of retirement product development for Sentry Insurance. Visit sentry.com for additional information.