New Year, New Rules: SECURE 2.0 Provisions Effective in 2025

In the United States, the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) was enacted over two years ago, but certain provisions are still being rolled out. Although the Internal Revenue Service (IRS) extended the deadline for plans to adopt SECURE 2.0 issued amendments until December 31, 2026 (December 31, 2028 for collectively bargained plans, December 31, 2029 for governmental plans), plan sponsors must comply operationally with the following significant provisions going into operational effect January 1, 2025:

1. Mandatory Automatic Enrollment Contribution Arrangements

SECURE 2.0 requires all 401(k) and 403(b) plans established after December 29, 2022, to automatically enroll participants in the respective plans upon participants becoming eligible. The provision seeks to remove barriers to enrollment by placing the initial burden on the plan sponsor to automatically enroll employees, rather than on the employees to enroll themselves, and increase participation in retirement savings plans.

The initial automatic enrollment amount must be at least 3%, but not more than 10% percent, of the employee’s salary. Each year thereafter the percentage must increase by 1% until it reaches at least 10%, but not more than 15%. Employees may opt out of participation or choose to modify their contribution percentage without penalty.

The mandatory automatic enrollment contribution arrangements apply to all retirement plans, except for small businesses with 10 or fewer employees, businesses that have been in business for less than three years, SIMPLE plans, church plans, and governmental plans. Additional guidance on which plans are subject to this provision as well as guidance for plan mergers and spinoffs can be found in a prior Sidley Insight, U.S. IRS Provides Guidance on Certain SECURE 2.0 Provisions: Key Details to Know.

2. Discretionary Increased Catch-Up Contributions for Ages 60-63

SECURE 2.0 allows 401(k), 403(b), and 457(b) governmental plans to offer an increased limit for catch-up contributions for participants attaining ages 60, 61, 62, or 63 during the taxable year. If a participant’s earnings with the employer sponsoring the plan are greater than $145,000, any catch-up contribution must be made on a Roth basis (assuming such contribution is permissible under the plan). If a participant’s earnings with the employer sponsoring the plan are less than $145,000, catch-up contributions may be made on a pre-tax or Roth basis.

Previously, all contributions were set at the same amount across age groups age 50 or older. Now, the increased contribution limit is set to be the greater of $10,000 and 150% of the regular catch-up limit, indexed for inflation.

The following table provides a breakdown of the contribution rates based on age group for 2024 and 2025.

The catch-up limits listed above are in-addition to the elective deferral limits. The total amount that a participant may contribute for 2025 is listed below.

This provision applies to taxable years beginning after December 31, 2024.

3. Expanded Coverage for Long-Term Part-Time Employee

SECURE 2.0 redefines “long-term part-time employees” to be employees who complete at least 500 hours of service in two consecutive years, down from the previous requirements of three consecutive years. This provision applies to all plan years beginning after December 31, 2024 for employees who are at least 21 years of age.

Additional history and guidance on this provision can be found in a prior Sidley Insight, The Latest in a Long Line of Long-Term, Part-Time U.S. Employee Guidance.

Knowledge management lawyer Katie Dean contributed to this Sidley Update.