SECURE Act 2.0 is ushering in additional changes that 401(k) plan sponsors and administrators need to prepare to implement. Updated eligibility requirements for part-time employees, mandatory auto-enrollment, changes to catch-up contributions for highly compensated employees and more provisions take effect in 2025 and 2026. Plan sponsors and administrators should also take note of optional provisions to determine if these new provisions should be included in your plan document. As these provisions’ effective dates roll out, take the proactive steps outlined below to help you avoid compliance or legal pitfalls.
SECURE Act 2.0 Refresher:
- Stands for Setting Every Community Up for Retirement Enhancement, also referred to as the Securing a Strong Retirement Act of 2022
- The second phase of a two-part congressional act that passed in 2022 and became effective in 2023
- Provisions from SECURE Act 2.0 began rolling out in 2023, including raising the required minimum distribution (RMD) age and updating hardship withdrawal documentation requirements
- Other SECURE Act provisions became effective in 2024, including optional provisions like student loan payment matching, and permission to add emergency savings accounts
Since it was signed into law in 2022, the SECURE Act 2.0 has made a deep impact on the world of retirement, especially for plan sponsors and administrators. Plan years 2025 and 2026 will bring even more changes to your plans, so this is the perfect time to review new mandatory and optional provisions and determine how best to amend your plan document to accommodate new provisions. There are several best practices you should put into place to help keep your plan in compliance.
Carefully Document Decisions and Track Amendment Deadlines
Why did you choose to select one optional provision over another? Why did you decide to educate participants the way that you did? Documenting the process behind these decisions will help your auditor. A solid record of your decision-making process can also help support you if there are any questions about compliance or legal challenges.
As you select optional provisions and determine how to implement mandatory ones, keep an eye on your deadlines. Some provisions are applicable earlier than others, so keeping tabs on the next effective date will help you stay on course and in compliance. Plan amendments for the SECURE Act 2.0 are due by December 31, 2026. While that may seem like a long way away, this date will creep up faster than you may expect, especially if you’re going back and forth with a service provider to finalize changes to your plan.
Identify Mandatory vs. Optional SECURE Act Provisions
Some SECURE Act provisions coming into effect in 2025 and 2026 are optional while others are mandatory. If you decide to implement an optional provision, you will need to make amendments to your plan document. Working with your third-party administrator (TPA) or your service provider can help you make the necessary updates to your plan.
SECURE Act 2.0 Provisions Effective 2025
Part-Time Employee Eligibility Requirements
Effective January 1, 2025
Plan sponsors must offer 401(k) plan eligibility to part-time employees aged 21 or older who work at least 500 hours in two consecutive years. Keep track of part-time hours, making sure to review how many hours part-time employees worked in 2023 and 2024. An automated tracking system can help you proactively monitor eligibility. Otherwise, part-time hours may go uncounted, potentially resulting in expensive retroactive contributions.
Mandatory Auto-Enrollment for New Plans
Effective 2025
As of 2025, employers are required to include automatic enrollment options for plan participants. This only impacts those setting up a new 401(k) or 403(b) plan. All eligible employees should be automatically enrolled at a minimum of 3%. You have the option to select a higher percentage up to 10%. It must automatically escalate by 1% each year up to a total of 15%.
Employees are allowed to opt-out, but you, as the employer, must educate them about their ability to decline enrollment as well as incorporate required notices for all auto-enrollment plans. Do so early to avoid confusion or complications with your payroll. Sometimes participants in auto-enrollment plans will wait to see their first paycheck with the contribution subtracted. One thing to keep an eye on, regarding employee opt-outs: If a participant earns $600 on a biweekly basis, their 3% contribution will come to about $18. If they decide after their first deduction that they don’t want to continue, you may end up with multiple accounts holding around $18 or less, which will then need to be refunded to the participants. Potentially tracking hundreds of accounts with small dollar amounts in them, particularly in environments with high turnover rates, can create an administrative nightmare. You should also be mindful that auto-enrollment can trigger the need for a 401(k) audit if your participant count increases to over 100.
Long-Term Care Insurance Withdrawals
Optional, Effective December 29, 2025
This optional provision allows participants to make penalty-free withdrawals of up to $2,500 annually to pay for long-term care insurance premiums. It’s effective for distributions made after December 29, 2025. Be aware that you will need to amend your plan document and educate participants about the new benefits available to them.
SECURE Act 2.0 Provisions Effective 2026
Changes to Catch-Up Contributions for High Earners
Effective January 1, 2026
Highly compensated employees, as defined by IRS thresholds, making catch-up contributions, were to do so on a Roth, not pre-tax, basis as of 2025, but Congress adjusted this provision after providers sounded the alarm: The provision has been delayed until 2026, giving you extra time to implement changes to catch-up contributions; the provision was also made optional. To head off potential confusion, the Treasury and IRS proposed additional regulations on the new Roth catch-up rule to provide more guidance for plan administrators to implement and comply with the rule.
SECURE Act 2.0 introduces significant opportunities and responsibilities for plan sponsors as we settle into 2025 and prepare for 2026. Staying proactive, documenting decisions, educating employees and working closely with your TPA can help you navigate these changes efficiently while improving offerings for your plan participants.
For more information on how our 401(k) audit team can help, request a free consultation below to discuss your unique 401(k) audit needs.
