As 2025 approaches, we want to share important reminders about key changes from the SECURE 2.0 legislation that have taken effect or will take effect soon.
- Increased Catch-up Contribution Limit for Ages 60 - 63. Participants aged 50 or over have been able to make additional elective deferrals each year, referred to as “catch-up contributions,” giving those participants a higher limit. The regular age 50 catch‑up contribution limit is $7,500 for 2024 and 2025.
Starting in 2025, SECURE 2.0 sets a higher catch‑up contribution limit of $11,250 for participants who turn ages 60 and 63 during the year. If a participant will be age 64 at the end of the year, the limit drops back down to $7,500. We expect most plans will take advantage of this feature, but to allow for this, you will need to work with your payroll provider and plan recordkeeper to make sure they are ready to accommodate the special limit.
- Cashouts of Small Balances of Terminated Participants. The limit on small balance cashouts rose from $5,000 to $7,000 starting in 2024. If the limit in your plan was $5,000 and you use Warner’s pre-approved plan document, note the limit increased to $7,000 starting in 2024 because our standard document generally ties the limit to the maximum limit allowed by law. If you haven’t confirmed your plan terms or that your recordkeeper has implemented this change, we recommend doing so right away.
- Long-Term Part-Time (LTPT) Employee 401(k)/403(b) Participation. Our eAlert last year notified you of a law change in SECURE 1.0 requiring 401(k) plans to give LTPT employees the right to make elective deferrals. An LTPT under SECURE 1.0 is someone who had over 500 hours or more in three consecutive years and is at least age 21 by the time they would enter the plan.
SECURE 2.0 reduces the tracking period for LTPT employees to two consecutive years and applies the law change to 403(b) plans too. In October 2024, the IRS issued Notice 2024-73 outlining in more detail how the law change affects 403(b) plans. Due to underlying differences between 403(b) and 401(k) plans, there are some differences in how the law change affects 403(b) plans compared to 401(k) plans. For example, the guidance makes it clear that the LTPT law change does not override existing law regarding the exclusion of certain student employees.
- 2024 Guidance on Optional Changes. In the past year, we saw government agencies issue guidance on several SECURE legislation changes, including guidance on qualified student loan payments (QSLPs) that can be matched under plans, Roth treatment of employer contributions, pension-linked emergency savings accounts, de minimis financial incentives and some of the new optional plan withdrawal events for federal disasters, small emergencies, and domestic violence. This guidance sets the stage for plan service providers to begin to offer these features and we are increasingly seeing recordkeepers reach out to plans asking about adding them.
Given the information still not known and the recency of this guidance, employers should continue to exercise caution in evaluating the addition of these features and discuss them with legal counsel before proceeding. We plan to issue additional eAlerts in 2025 on some of these topics, including one in early 2025 on QSLPs.
- Timing of SECURE Amendments. While it is often the case that the plan document must be amended before an operational change occurs, SECURE 1.0 and 2.0 have numerous changes that must, or may (in the case of optional changes), be implemented before the plan document is amended to recognize the change. We are finding that there is some confusion about the absence of an amendment before operational changes take effect and that, in some cases, recordkeepers are asking for plan amendments. Plan amendments are not required until at least the end of 2026 (this deadline could be further delayed) and will not be drafted until the IRS issues more guidance on what it wants these amendments to say.
- Please let us know of any operational changes you make and share with us any election forms or other documentation from your plan’s service provider. This will help us keep track of the changes you make operationally so we can amend the plan when it’s time to do so.
This is intended to be a high-level reminder of some key changes to keep in mind as we reach the end of 2024.
