The SECURE 2.0 Act of 2022 was enacted to enhance retirement savings and financial security. With more than 90 provisions affecting a wide range of retirement plans, the law is being implemented in phases over several years, from 2023 through 2033. While some key changes took effect in 2023 and 2024, more significant updates are coming in 2025—and employers need to be prepared.
Does Your 401(k) Plan Still Need an Audit?
Starting with plan years beginning in 2023, the participant count for determining whether a plan requires an audit is now based on the number of participants with account balances at the beginning of the year — not all eligible employees.
- Old Rule (Pre-SECURE 2.0):
- If a plan had 100 or more eligible participants, it generally required an audit, even if many had not contributed.
- New Rule (SECURE Act 2.0):
- Now, the 100-participant threshold applies only to those with account balances.
- This will reduce audit requirements for many small plans.
Still confused? Our blog breaks it down with a helpful table that makes it easy to understand.
The Top Three: Key SECURE 2.0 Changes Taking Effect in 2025
Several changes have been legislated for 2025, but these three main provisions are the most critical to understand right away.
- Automatic Enrollment
- Enhanced Catch-up Contributions
- Coverage for Long-Term, Part-Time Employees
Remember, SECURE stands for Setting Every Community Up for Retirement Enhancement. It is designed to encourage workers to save by making it almost more difficult not to do so. Aimed at all workers, the SECURE Act 2.0 targets lower-income workers who may not have the language or reading skills to participate in savings plans proactively.
1) Automatic Enrollment
A key feature that begins January 1, 2025, is the automatic enrollment provision. Beginning January 1, 2025, 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll eligible employees. The opening contribution rate must be between 3% and 10% of compensation, increasing by 1% annually up to a minimum of 10%, and a maximum of 15%.
Note 1: Employers get a short grace period to implement these changes, but failure to enroll employees on time may result in penalties. Employers are expected to retroactively enroll missed participants and make up missed contributions, including gains or losses.
Note 2: Employees can opt out of this “automatic” enrollment.
Link: Click here to see Treasury, IRS regulations regarding automatic enrollment.
2) Enhanced Catch-Up Contributions
Participants aged 60 to 63 will be allowed to make higher catch-up contributions (although not required). They can contribute the greater of $10,000 or 150% of the regular catch-up limit, adjusted annually for inflation. Sometimes, a person has worked much of their lives without saving.
Note: This feature lets those closer to retirement regain some lost opportunity.
Link: This IRS document explains the catch-up contributions in detail and includes cost-of-living information related to the topic.
3) Coverage for Long-Term, Part-Time Employees
The service requirement for long-term, part-time employees (LTPTEs) will be reduced from three years to two years. This means part-time employees who work at least 500 hours per year for two consecutive years will be entitled to participate in their employer’s 401(k) plan.
While auditors won’t be reviewing eligibility for long-term, part-time employees in 2025, TPAs and employers must begin tracking relevant data—such as hours worked, employee names, hire dates, and Social Security Numbers—now. This information will be crucial for determining eligibility at year-end and ensuring compliance when the audit requirements kick in.
Note: Employers do not have to provide an employer contribution to LTPTEs, but they can elect to create an employer match program if they would like.
Link: For additional guidance on part-time employees, please see this IRS publication.
CONCLUSION
With so many updates on the horizon, now is the time to double-check your retirement plan set up. The good news? Many of the SECURE 2.0 changes are designed to make things simpler and more inclusive—for both employers and employees.
LSL will continue to update our clients on the new provisions as they roll out and help interpret and incorporate the laws into your 401(k) plans. If you have any questions, contact us today!
