Although the SECURE 2.0 Act of 2022 (SECURE 2.0) was enacted nearly two years ago, several provisions of the new legislation will become effective in 2025. Plan sponsors of defined benefit (DB) and defined contribution (DC) plans should review the following items and work with their service providers to address any questions before the effective dates.

DC plans: Automatic enrollment (mandatory)

Section 101 of SECURE 2.0 requires all 401(k) qualified cash or deferred arrangements (CODAs) and 403(b) plans established after December 29, 2022, the SECURE 2.0 enactment date, to incorporate an eligible automatic contribution arrangement (EACA). This requirement applies to plan years beginning after December 31, 2024, unless an exception applies. The Internal Revenue Service (IRS) provided some guidance in Notice 2024-2, detailing the criteria for when a qualified CODA is considered established, and clarifying how the rules apply in cases of mergers or spinoffs.

As the law is currently written, the automatic enrollment requirement also applies to multiemployer DC plans that add a 401(k) feature after December 29, 2022. This poses significant challenges for these collectively bargained plans, as employees may work for multiple participating employers. Payroll providers and administrators would have to coordinate to track deferrals, manage opt-out elections, and ensure compliance with timely remittance requirements. These complexities may deter multiemployer DC plans from adopting a 401(k) feature, ultimately hindering retirement savings for plan members. To address this issue, Congress would need to add an exemption for multiemployer plans from the automatic enrollment requirement to the pending technical corrections to SECURE 2.0.

DC plans: Higher catch-up contributions for ages 60 through 63 (voluntary)

Section 109 of SECURE 2.0 permits 401(k), 403(b), and governmental 457(b) plans¹ to offer higher catch-up contributions beginning in 2025 for participants attaining ages 60, 61, 62, or 63 before the end of the taxable year. For 2025, the maximum catch-up limit is the greater of $10,000 or 150% of the regular catch-up limit, and this amount will be adjusted for inflation. The regular catch-up limit for 2025 for participants under age 60 is projected to be $7,500, and the catch-up limit for those aged 60 to 63 is projected to be $11,250.²

The above plans are not required to offer catch-up contributions. However, they can be amended to add this feature and allow participants who are aged 50 or older during the tax year to make catch-up contributions above the regular elective deferral limit under Internal Revenue Code (IRC) section 402(g), or the identical limit under IRC 457(b)(2) pertaining to 457(b) plans. SECURE 2.0 allows plans to increase the catch-up contribution limit further for those aged 60, 61, 62, and 63, beginning in 2025.

Figure 1 shows the annual 2024 contribution limits and projected 2025 limits. Participants in plans that do not offer a catch-up provision may only contribute up to a projected $23,500 in 2025. If the plan permits catch-up contributions, but not the enhanced catch-ups allowed by SECURE 2.0, then the maximum amount participants can contribute in 2025 is projected to be $31,000 ($23,500 plus $7,500). If the plan offers the enhanced catch-up feature, participants aged 60, 61, 62, or 63 can contribute up to $34,750 in 2025 ($23,500 plus $11,250).

Section 603 of SECURE 2.0 will require 401(k), 403(b), and governmental 457(b) plans that offer catch-up contributions to only accept catch-up contributions on a Roth basis if a participant’s Federal Insurance Contributions Act (FICA) wages exceed $145,000 in the prior calendar year, indexed for inflation. IRS Notice 2023-62 provided a two-year delay in the implementation of this provision, until January 1, 2026, and provided guidance to plan sponsors during the transition period.

DC plans: Coverage for long-term part-time employees (mandatory)

Eligibility requirements for long-term part-time (LTPT) employees were initially established under section 112 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). These requirements pertain to eligibility for contributing to CODAs under 401(k) plans, effective for plan years beginning after December 31, 2020. The first potential 401(k) LTPT employee became eligible in the 2024 plan year under the SECURE Act, provided they completed three consecutive 12-month periods, each with at least 500 hours of service. Sections 125 and 401 of SECURE 2.0 lowered these LTPT eligibility requirements and expanded them to include ERISA-covered 403(b) plans starting in 2025.

• Beginning with plan years after December 31, 2024, LTPT employees will be eligible to participate in a 401(k) qualified CODA or ERISA-covered 403(b) plan if they have completed at least 500 hours of service in each of two consecutive 12-month periods and have attained age 21 by the end of the second 12-month period.

On November 27, 2023, the IRS issued proposed regulations related to LTPT employees in 401(k) plans, applicable to plan years beginning on or after January 1, 2024. These proposed regulations define LTPT employees and former LTPT employees and specify methods for crediting their service. Upcoming final regulations related to these employees will not apply earlier than plan years beginning on or after January 1, 2026. Until final regulations are released, 401(k) plan sponsors may rely on the guidance in the proposed regulations related to 401(k) LTPT employees.

On October 3, 2024, the IRS issued guidance on LTPT employees in ERISA-covered 403(b) plans, applicable to plan years beginning after December 31, 2024. The IRS plans to issue proposed regulations specific to LTPT employees in ERISA-covered 403(b) plans, which are expected to be similar to the 401(k) LTPT employee rules.

Plan amendments related to SECURE 2.0

Plans must be amended to incorporate any changes related to SECURE 2.0 by December 31, 2026. For collectively bargained plans, the deadline is December 31, 2028, and, for most governmental plans, it is December 31, 2029. This is contingent on the plan having operated in compliance with such changes as if the amendment was in effect from its applicable effective date (or, if later, the date optional SECURE 2.0 provisions were put into place operationally). A full summary of the amendment deadlines is available here.

DB plans: Changes to the annual funding notice (mandatory)

Section 343 of SECURE 2.0 revised certain disclosures on the annual funding notice (AFN) for single-employer and multiemployer DB plans starting with the 2024 plan year notices distributed in 2025. We expect that the U.S. Department of Labor (DOL) will issue guidance or new model notices to assist plan sponsors and professionals in implementing these changes. However, no such guidance has been issued yet. A couple of the key changes that require additional guidance are mentioned below.

• All plans must disclose the counts of active, terminated vested, and retired participants as of the end of the notice year plus the two prior plan years. For calendar year plans, collecting data as of December 31, 2024, by April 2025 could be challenging. This may require providing the data to the actuary sooner or identifying an alternative method to gather these counts. Additional guidance is needed to help plan professionals understand their options for complying with this requirement.
• Single-employer plans must disclose the plan’s funded percentage, assets, and liabilities as of the end of the notice year, rather than as of the beginning of the year. Additional guidance is needed to clarify how these changes should be implemented and whether the supplement to the AFN will still be required.

Please contact your Milliman consultant with any questions.

¹ Simplified employee pension (SEP) plans and Savings Incentive Match Plans for Employees (SIMPLEs) may also permit catch-up contributions, but these plans are not discussed here.

² In setting the 2025 catch-up limit for those age 60 to 63, SECURE 2.0 references the regular 2024 catch-up limit. However, draft technical corrections bill would base the higher catch-up limit on the regular 2025 catch-up limit.