The SECURE Act 2.0, enacted in late 2022, continues to reshape the retirement landscape through a series of phased-in provisions. As we progress through 2025, plan sponsors, payroll providers, and administrators face new operational and compliance challenges. This article outlines key provisions and offers insights into navigating their implementation effectively for defined contribution plans.
Roth Catch-Up Contributions
With a delayed mandatory start beginning in 2026, catch-up contributions for employees (over age 50) earning over $145,000 (based on prior year FICA wages) must be made to Roth accounts. Challenges include:
- Payroll adjustments: Roth designations must be updated each year on January 1 for any participants who meet the $145,000 threshold for the prior year. Additionally, anyone who had met the threshold, but no longer meets it, should be changed back to regular deferrals (unless they elect Roth).
- Compensation definition: FICA wages may differ from the plan’s definition of eligible compensation, which can be confusing. This could lead to misclassification of employees between those who earn over $145,000 and those who earn under $145,000.
- Plan recordkeeping: Even plans without Roth deferrals must now accommodate Roth catch-ups, requiring coordination with third-party administrators.
Roth Employer Contributions
Beginning in 2023, sponsors may elect to make Roth employer contributions, even if their plan does not offer Roth deferrals. This flexibility, however, introduces several administrative hurdles:
- Recordkeeping: Plans must ensure that Roth employer contributions are tracked separately from other employer contributions.
- Taxable income: Employers must track Roth employer contributions to be reported on employees’ W-2s as taxable income.
- Payroll system: Payroll systems must accommodate both Roth and pre-tax employer contributions, allowing for participant elections and changes.
- Vesting: Only fully vested participants are eligible for Roth employer contributions, requiring that Plan administrators make vesting determinations prior to allowing participants to make this election.
“Super Catch-Up” Contributions (Ages 60–63)
This provision was available for adoption as of January 1, 2025. If a Plan sponsor elects this optional provision, participants aged 60 to 63 may contribute an additional 50% above the standard catch-up limit for participants 50 and older. Key factors to consider include:
- Age tracking: Employers must monitor participant ages to apply the correct limits. Not only will they need to ensure that participants are allowed to make the contributions at age 60, but they will also need to ensure they are prohibited from making the contributions after age 63.
- Election mechanism: Participants need a clear method to opt into this enhanced contribution window.
- Communication: Participants should be informed about eligibility and contribution limits well in advance of their 60th birthday.
- Roth requirements: These contributions are also subject to the Roth mandate for those earning over $145,000 (as noted above).
Expanded Eligibility for Part-Time Employees
Beginning January 1, 2025, part-time employees with at least 500 hours of service in each of two consecutive years must be allowed to contribute to retirement plans (reduced from three years under the original SECURE Act). Key points include:
- Eligibility tracking: Employers must monitor hours and notify employees when they become eligible.
- Vesting: The years counted for eligibility must also be counted for vesting. Tracking of hours by year will be imperative for the proper implementation of this requirement.
Mandatory Automatic Enrollment and Escalation for New Plans
All new 401(k) and 403(b) plans established after January 1, 2025, must include automatic enrollment and escalation features. Specifically, participants must be enrolled with at least a 3% deferral, with a 1% annual escalation up to at least 10%, unless they affirmatively elect not to be enrolled or escalated. Challenges of implementation include:
- Opt-out documentation: Employers must retain records for participants who decline enrollment and/or automatic escalation. Participants must be able to decline one or the other.
- Timely enrollment: Systems must ensure all eligible employees are enrolled promptly unless they opt out.
- Escalation: Automatic increases must align with plan documents, either on a fixed date or participant anniversary.
- Impact on plan size: Increased participation may help plans to pass nondiscrimination testing, but it may also push small plans filing form 5500-SF over the participant count threshold requiring a full Form 5500 filing and an audit.
- Small balances: Automatic enrollment plans where employee turnover is high often result in numerous small balances in terminated participant accounts. Plans sponsors should monitor these accounts and follow their Plan provisions for involuntary cash out of small balances.
Student Loan Matching Contributions
Beginning January 1, 2024, employers may elect to match qualified student loan payments (QSLPs) as if they were retirement plan contributions. Considerations include:
- Certification: Participants must certify that payments were for qualified education expenses for themselves or a spouse, that payments have been made, and when the payments were made. Plan sponsors should implement a formal process for employee certification.
- Matching frequency: Plan sponsors will need to consider how this will be effectively implemented, especially if they only provide for employee matching contributions on a pay period (rather than annual) basis.
- Nondiscrimination testing: New stratification methods may be needed for ADP testing to ensure compliance.
Takeaways
The SECURE Act 2.0 introduces meaningful opportunities to enhance retirement readiness, but it also demands significant operational readiness for plan sponsors. Employers should work closely with payroll providers, recordkeepers, and third-party administrators to ensure systems and processes are updated for compliance. Early planning, clear communication, and robust tracking mechanisms will be essential to successfully navigating these changes.
Author: Christine Flaker, CPA, Principal | [email protected]
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For more information on this topic, please contact a member of Withum’s Employee Benefit Plan Services Team.
