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What SECURE 2.0 Provisions Should Plan Sponsors Be Aware Of in 2025?
Vanguard’s David Stinnett discusses the handful of changes going into effect that will impact retirement plan administration next year.
As the IRS has announced 401(k) contribution limits for 2025 and several provisions from the SECURE 2.0 Act of 2022 will soon go into effect, it is important that plan sponsors are prepared for the new year.
David Stinnett, a principal of strategic retirement consulting at Vanguard, says there are three provisions from SECURE 2.0 that plan sponsors should be focused on: new catch-up contributions for those aged 60 through 63; plan eligibility for long-term, part-time employees; and the Department of Labor’s lost and found database.
Age 60 to 63 Catch-Ups
Beginning in January 2025, employees ages 60 through 63 can contribute the greater of $11,250 or 150% of the current age 50 catch-up limit. At age 64, the limit reverts back to the standard catch-up amount.
Stinnett says most 401(k) plans today allow catch-up contributions, and according to Vanguard’s “How America Saves” report, about 15% of eligible participants are utilizing catch-ups. Currently, at age 50, a participant can contribute an additional $7,500 beyond the standard contribution limit.
“We’re working with a lot of plan sponsors to make sure they understand this,” Stinnett says. “As a recordkeeper for 401(k) plans, we’re taking the assumptions that plan sponsors are going to want to adopt this, so we are implementing it for them and asking them to reach out to us if they want to opt out from this new, higher catch-up contribution.”
Long-Term, Part-Time Employees
Also starting next year, long-term, part-time employees who have completed 500 hours of service in two consecutive years at their company must be eligible to participate in the employer’s retirement plan.
Stinnett says this is an improvement over the previous standard, which was that employees would need at least 1,000 hours of service per year.
The Department of the Treasury and the IRS recently issued guidance confirming that student employees are not considered long-term, part-time employees of their colleges and universities for the purposes of retirement savings in 403(b) plans.
Lost and Found Database
SECURE 2.0 also directed the Employee Benefits Security Administration to establish by December 29, 2024, a search tool to help missing participants and their beneficiaries find their retirement benefits.
The database is meant to allow people to search for balances earned under their Social Security number from prior plans.
In a proposed information collection request issued earlier this year, the DOL anticipated asking plan administrators for extensive historical information to populate the database, but the DOL submitted a narrower ICR after receiving criticism during its comment period.
IRS 401(k) Limits
The IRS announced on Friday the annual contribution limits for qualified defined contribution plans and individual retirement accounts for the 2025 tax year.
The annual contribution limit for workers who participate in 401(k), 403(b) and most 457 plans, as well as the federal government’s Thrift Savings Plan, will increase to $23,500, up from $23,000 in 2024.
Stinnett says recordkeepers and payroll providers do most of the heavy lifting when adapting to the new limits. Vanguard has a process in which it notifies plan sponsors and participants about the change and updates the plan recordkeeping systems to allow the new contribution limits.
Vanguard also changes the compliance testing rules so that at the end of the year, when compliance testing is conducted, the new rules are taken into account.
Broader Policy Trend
“These provisions, if you step back and look at them, are illustrative of a very important, broader realization that policymakers continue to view the 401(k) plan as the primary way in which most Americans prepare for retirement,” Stinnett says. “These plans, if properly designed, work very well, but it’s important to keep identifying points of improvement.”
For example, with catch-up contributions, Stinnett argues that policymakers want to make sure older workers who might have joined the workforce later in life or who might not have had access to a retirement plan through their whole career get a chance to contribute even more.
Stinnett says the lost and found database is significant because policymakers are understanding that the workforce is mobile and people may change jobs more than 10 times throughout their careers, making it important for them to keep track of—or find, when missing—their various retirement plan balances.