As we approach 2025, several major provisions of the SECURE 2.0 Act are set to go into effect. These changes are designed to enhance retirement plan access, improve savings opportunities, and provide greater flexibility for both employees and employers. For business owners and financial advisors, understanding these provisions is crucial to navigating the evolving retirement planning landscape.
Here’s a breakdown of the most impactful changes coming in 2025:
1. Mandatory Automatic Enrollment for New Retirement Plans
Beginning in 2025, any 401(k) or 403(b) plans that were established after December 29, 2022 must include automatic enrollment for employees, unless they choose to opt out. The default contribution rate is typically 3%, with auto-increase of 1% per year up to 10-15%.
Automatic enrollment is proven to significantly boost participation rates, helping employees save for retirement. While it does place a requirement on employers to ensure good communication with employees, it was already a popular provision because of its impact on plan success.
2. Employer-Sponsored Emergency Savings Accounts
Employers will be allowed to offer emergency savings accounts linked to their retirement plans, providing employees with a flexible tool to handle short-term financial needs, reducing the need to borrow against retirement funds. This provision allows up to $2,500 to be contributed to these accounts, with a certain number of penalty-free withdrawals each year.
By offering emergency savings accounts, employers can address one of the biggest barriers to retirement savings: employees dipping into their retirement funds for emergencies. This feature can improve financial wellness and reduce financial stress among workers.
3. Expanded Catch-Up Contributions for Employees Aged 60–63
From 2025, employees aged 60–63 will be eligible to make higher catch-up contributions to their retirement plans, giving them an opportunity to accelerate savings as they near retirement. This new limit allows older participants to contribute up to 150% of the standard catch-up amount for maximum savings.
This provision is a valuable way to help older employees shore up their retirement savings. Employers should ensure their plans are updated to accommodate these increased contributions.
4. Student Loan Payment Matching Contributions
Employers will be able to treat employees’ student loan repayments as retirement plan contributions, making those repayments eligible for employer matching. This provision helps employees focus on reducing student debt while still building retirement savings.
This is a game-changer for attracting and retaining younger employees who are burdened by student debt. Employers that implement this feature demonstrate a commitment to addressing the financial challenges faced by their workforce, while supporting healthy financial habits.
5. Saver’s Match Replacing the Saver’s Credit
The Saver’s Credit, a tax credit for low- and moderate-income individuals, will be replaced by a Saver’s Match. The federal government will match 50% of an individual’s contributions to a retirement account, up to $1,000 annually. The match will be deposited directly into the retirement account rather than being issued as a tax credit.
This change provides low- and moderate-income employees with a tangible boost to their retirement savings. Advisors should consider how to communicate this benefit to eligible clients and ensure accounts are set up to receive these matches.
Looking Ahead
The provisions of SECURE 2.0 are a significant step toward improving retirement readiness for workers across the country. Consider the potential benefits of adding some of these provisions to your existing retirement plan. By understanding these changes and preparing ahead of time, employers can build a solid strategy for providing maximum value to employees.
Need help navigating SECURE 2.0? Contact us today for expert guidance on updating your retirement plans for 2025 and beyond.
