SECURE 2.0 Updates for 2025
As we move further into 2025, businesses and employees will see significant updates to the retirement savings landscape thanks to updates to the SECURE Act 2.0. These changes aim to make it easier for employees to save for retirement, increase participation rates, and address some of the challenges faced by part-time workers, low-income earners, and those burdened by student loan debt.
Let’s dive into the key updates for 2025 and how they will affect business owners and employees.
1. Mandatory Auto-Enrollment in New Retirement Plans
Starting in 2025, businesses that establish new 401(k) or 403(b) plans will be required to automatically enroll employees. While employees will still have the option to opt out, this provision aims to boost participation rates and overall retirement savings.
Contribution Rates: The initial contribution rate will range from 3% to 10% of salary, with an automatic increase of 1% each year until the contribution rate reaches at least 10% (but not exceeding 15%).
What This Means for Employees: This change will likely increase retirement savings for employees who might otherwise forget or neglect to enroll. However, employees who feel the contribution rate is too high can opt out or adjust it.
For employers, this means administrative processes will need to account for automatic enrollment, which could require system updates or changes to employee communications.
2. Increased Catch-Up Contributions for Workers Ages 60 to 63
For those nearing retirement, the SECURE 2.0 Act provides an opportunity to boost their retirement savings. Specifically, individuals who are between the ages of 60 to 63 by the end of the calendar year will be allowed to make higher catch-up contributions to their 401(k) or 403(b) plans as follows:
Catch-Up Limit for 2025:
For individuals aged 60 to 63, the maximum catch-up contribution amount is $11,250.
For individuals aged 50 to 59 or 64 and older, the maximum catch-up contribution amount is $7,500.
This change allows individuals closer to retirement to accelerate their savings and help close any gaps in their retirement funds.
3. Emergency Savings Accounts for Employees
A new option for employees in 2025 is the ability to open an emergency savings account known as a pension-linked emergency savings account (PLESA) alongside their retirement plan. This provides a way to set aside money for unexpected expenses without the penalties typically associated with early retirement account withdrawals.
Contribution Limits: Employees can contribute up to $2,500 to a Roth using after-tax dollars.
Penalty-Free Withdrawals: Withdrawals can be made for qualified emergencies, offering penalty-free access to the funds.
Employer Matching: Employers have the option to match employee contributions, further incentivizing savings. The employer matching contribution is deposited into a regular defined contribution plan, not the PLESA.
Withdrawals: Withdrawals are made at the discretion of the employee, and employees can take up to one withdrawal per month with the first four withdrawals free of any fees or charges.
This provision can help employees feel more secure knowing they have an emergency savings buffer in place while still being able to contribute to their retirement accounts.
4. Student Loan Matching Contributions
For employees struggling with student loan debt, SECURE 2.0 introduces a solution to help them prioritize their student loans and retirement savings simultaneously. Starting in 2025, businesses can match an employee’s student loan payments with contributions to their retirement plan.
How It Works: If an employee is making student loan payments but cannot afford to contribute to their retirement plan, the employer can still make a matching contribution to their 401(k) or 403(b) plan as if the employee were contributing to the retirement account subject to the same annual limits as regular retirement plan contributions.
The Benefit: This provision helps employees get the retirement savings benefit they might otherwise miss while paying down student debt.
This is a great opportunity for employers to support their staff in balancing student debt repayment with saving for retirement. Since employers are not required to offer this benefit, it is best to check with your company’s HR department.
5. Reduced Service Requirement for Part-Time Workers
Another important update in SECURE 2.0 is the reduced service requirement for part-time workers to participate in employer-sponsored retirement plans.
Eligibility for Part-Timer Workers: Beginning in 2025, employees who work at least 500 hours annually for two consecutive years will be eligible to participate in the retirement plan. This reduces the previous three-year requirement, expanding access to more part-time workers.
What This Means for Employers: Employers will need to track hours for part-time employees more carefully to ensure compliance with this new rule and make sure part-time workers are offered the opportunity to participate in retirement plans. Employers are not required to make matching contributions.
6. Saver’s Match for Low- and Moderate-Income Employees
To help low- and moderate-income employees save more for retirement, in 2027 the Saver’s Credit is being replaced by the Saver’s Match, which will provide a federal matching contribution directly into a taxpayer’s retirement accounts, such as a 401(k) or IRA.
What’s New: Instead of receiving a tax credit, eligible taxpayers who contribute up to $2,000 to their retirement account will now get a direct matching contribution from the Treasury up to $1,000 per year, providing a more immediate and impactful benefit. The Saver’s Match phases out at joint incomes of $71,000 for taxpayers filing married filing jointly, and $35,000 for single filers.
How It Helps: This change will encourage employees who may have been hesitant to save due to financial constraints to contribute more toward their retirement.
This provision can help bridge the retirement savings gap for employees who may not have been able to save enough due to lower earnings.
Additional Considerations for Business Owners
As a business owner preparing for these changes, it’s essential to ensure your retirement plan complies with SECURE 2.0. Here are some important things to keep in mind:
Plan Compliance: Failing to comply with the new SECURE 2.0 regulations could result in penalties and increased scrutiny from regulators. We recommend you work closely with your plan administrator to stay compliant.
Roth Catch-Up Contributions for High Earners (Effective 2026): For high earners (those making more than $145,000 annually), catch-up contributions will need to be made on a Roth basis starting in 2026. This means contributions will be after-tax, and this change may have tax planning implications.
Retirement Plan Lost and Found Database: Beginning in 2025, employees will be able to locate their old retirement plans through a federal database. This will streamline the process of tracking down funds from former employers, reducing administrative headaches for HR teams.
The updates introduced by SECURE 2.0 will significantly transform the retirement landscape, providing employees with enhanced opportunities to save and plan for their futures while offering businesses new ways to support their workforce. From mandatory auto-enrollment to innovative provisions like student loan matching and emergency savings accounts, these changes aim to address the evolving needs of today’s workforce.
As these updates take effect, staying informed and proactive will be critical to navigating the new regulations. If you have any questions or would like to discuss how these changes impact your financial planning, please reach out to your Quantum advisor.
Source
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