Employers Face New Rules for Retirement Savings Plans in 2025 by Melissa Fleitas, CPA
The passage of the SECURE Act 2.0 in 2022 introduced sweeping changes to help enhance taxpayers’ retirement savings opportunities and improve the costs and managerial headaches employers face administering employee benefits plans, including 401(k)s, 403(b) and 457(b) plans. Since that time, employers of all sizes have gained expanded tax credits for establishing employee retirement savings plans, simplified methods for filing plan returns and less paperwork for plan participants taking hardship withdrawals. Following are the provisions of the law that take effect on Jan. 1, 2025.
Automatic Enrollment Requirement
Employers operating for a minimum of three years with more than 10 employees that adopted 401(k) plans, 403(b) plans or multiple employer plans (MEPs) on or after Dec. 29, 2022, must automatically enroll eligible employees in those plans with an initial salary deferral contribution rate of between 3 percent and 10 percent. The automatic contribution percentage must increase by 1 percent each subsequent year until it reaches 10 percent and no more than 15 percent. Eligible employees may opt out of the plan at any time. For SIMPLE 401(k) plans, the automatic enrollment provision applies when the employer has 100 or fewer employees.
Higher Catch-Up Contributions
Starting Jan. 1, 2025, employers may offer plan participants ages 60 through 63 years old the ability to make annual catch-up contributions of up to $11,250 to a workplace plan. The amount is indexed annually for inflation. Catch-up contributions for individuals ages 50 through 59 and 64 or older remain at $7,500 in 2025.
Employers should also remember that after Dec. 31, 2025, catch-up contributions for employees earning more than $145,000 must be treated as after-tax contributions to a Roth plan the employer must establish.
Faster Eligibility for Part-Time Workers
Beginning in 2025, part-time workers may qualify to participate in an employer’s 401(k) or 403(b) plan after completing two years of service with at least 500 hours worked per year but fewer than 1,000 hours. Previously, long-term part-time (LTPT) workers’ eligibility was based on three years of service. It is critical plan sponsors review their plan design and employee population to determine if they are subject to the LTPT employee requirements and whether to include LTPT in employer contributions and non-discrimination testing.
For ERISA 403(b) plan sponsors, the IRS confirmed in 2024 that employers may exclude from LTPT eligibility student employees, nonresident aliens and employees otherwise eligible under another section 403(b) plan, 457(b) plan or a section 401(k) plan sponsored by the same employer. Plan sponsors must review their plan design and employee population to determine if they are subject to the LTPT employee requirements.
Retirement Savings Lost and Found
The SECURE Act 2.0 called for the Department of Labor (DOL) to create a Retirement Savings Lost and Found to help workers locate retirement savings they earned but may have lost track of or forgotten. The database was scheduled to go live at the end of 2024.
Simplified Paperwork Requirements (Sections 341 and 338)
In 2025, the U.S. treasury and DOL are expected to issue regulations allowing plan administrators to consolidate certain required notices, including those concerning automatic enrollment, default investment alternatives, withdrawals from eligible automatic contribution arrangements and alternative methods of meeting nondiscrimination requirements.
Looking ahead to plan sponsors’ paperwork requirements in 2026, they should be prepared to provide defined contribution plan participants with at least one written statement on paper each year and at least one written statement every three years to defined benefit plan participants. An exception to these rules exists for plans that allow employees to opt into e-delivery of plan statements.
About the Author: Melissa Fleitas, CPA, is an associate director of Assurance and Advisory Services with Berkowitz Pollack Brant, where she provides accounting, audit and consulting services to a wide range of companies in the healthcare, manufacturing and distribution sectors. She can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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