SECURE 2.0 quarterly update
Optional provisions available in 2025
- Higher catch-up contribution limit.
- Matching contributions for student loans.
- Emergency expense withdrawals.
- Self-certification for hardship withdrawals.
- Withdrawals for domestic abuse (WDA).
- Qualified Disaster Recovery Distribution (QDRD) (enhanced solution).
Financial wellness
Background and perspective
SECURE 2.0 gives plan sponsors the choice to increase the catch-up contribution limit for participants who are ages 60 to 63 at the end of the calendar year to the greater of $10,000 or 150% of the then-current catch-up limit. These amounts will be indexed for inflation after December 31, 2025.
Plan sponsor actions and resources
- Before adopting this provision, plan sponsors should work with their payroll or in-house department to ensure that additional catch-up amounts can be programmed to deduct the higher catch-up limit for eligible participants (ages 60 to 63).
- Vanguard strongly recommends not adding the higher catch-up contribution limit provision to your plan until your payroll provider is prepared to support the additional contribution deductions for this participant population.
- Plan sponsors who would like to adopt this provision should reach out to their client success executive.
- We encourage plan sponsors to share the following resources with their participants:
- An informational piece to educate participants about the provision and how it can boost retirement savings.
- Updates to existing participant education materials to reflect the new higher catch-up contribution limit option.
Important updates for plan sponsors
- On January 13, 2025, the Internal Revenue Service (IRS) issued a proposed regulation addressing the SECURE 2.0 provision that pertains to catch-up contributions. Key takeaways impacting this provision are:
- The offering of higher catch-up contributions to participants ages 60 to 63 is optional.
- A plan that offers catch-up contributions would not fail to satisfy the catch-up contribution universal availability requirements.
- For detailed information on this guidance, please see the Regulatory roundup.
- Plan amendment reminders:
- For plan sponsors opting out of this provision: Plan sponsors using a custom document should consult with their in-house counsel to determine the timing of any amendments needed. Depending on the language in the custom document, an amendment may have been required by December 31, 2024.
- For plan sponsors opting in to this provision: Plan sponsors using Vanguard’s preapproved document will require a plan amendment by the December 31, 2026, SECURE 2.0 plan amendment deadline.
To learn more about this optional provision, read the Higher Catch-up Contribution Limit brochure.
Background and perspective
This provision gives plan sponsors the option to match contributions on qualified student loan repayments without requiring employees to make elective deferrals. Vanguard is actively partnering with Candidly to provide a robust student loan match solution to our clients.
Plan sponsor considerations and resources
- Before determining if student loan matching is the best fit for their plan, plan sponsors should consider several factors, including their current workforce population, participation rates, and saving rates.
- Plan sponsors interested in adopting this provision should begin engaging with their payroll provider and ERISA counsel to discuss considerations.
- While matching contributions is an important part of our student loan offer, plan sponsors can also take advantage of several student loan debt services offered by Candidly.
Distributions
Background and perspective
This provision gives employees access to retirement funds for emergencies, allowing a distribution of up to $1,000 for personal or family emergency expenses without being subject to the 10% early withdrawal penalty. Only one distribution per year is permitted, and participants cannot take additional distributions for the next three calendar years without first repaying their first distribution. Participants must self-certify in writing that they meet the requirements for this distribution type.
Plan sponsor considerations and resources
- Plan sponsors should think about whether they want to provide participants with access to retirement savings for nonretirement savings reasons, as well as other benefits offerings, such as Employee Assistance Programs (EAPs) and disability benefits, that may provide them with access to funds in case of an emergency.
- We encourage plan sponsors thinking about offering this provision to consider the age and retirement preparedness of their employee population.
Background and perspective
This provision modifies the current hardship rules to allow plans to permit participants to self-certify that a distribution meets the requirements for a hardship withdrawal. A hardship withdrawal is defined as a distribution from a participant’s elective deferral account for an immediate and heavy financial need.
Plan sponsor considerations and resources
- Our recommended approach is to use Vanguard’s summary service, which does not require the participant requesting a hardship withdrawal to supply supporting documentation at the time of the distribution. The participant needs to provide only a summary of the information contained in the source documents. However, the participant must have that documentation available should it ever be requested by the IRS.
- Plan sponsors should decide whether they want to provide easier access to retirement funds for hardships, review their current hardship withdrawal request volumes, and examine their current level of documentation efforts and administrative burden to determine if participant self-certification would benefit their employees.
To learn more about this optional provision, read the Self-Certification for Hardship Withdrawals brochure.
Background and perspective
Plan sponsors may elect to allow a withdrawal for domestic abuse survivors in the amount of the lesser of $10,000 or 50% of the participant’s vested account balance without being subject to the 10% early withdrawal penalty. The amount may be repaid within three years of distribution. The withdrawal for domestic abuse (WDA) provision gives plan sponsors another way to support domestic abuse survivors by allowing participants to take an in-service distribution from the plan.
Plan sponsor considerations and resources
- Plan sponsors considering this provision should think about how it fits with their benefits package to best support their employees.
- Plans choosing to offer this optional provision will need to remove administrative spousal consent as a requirement on their plan to allow participants to self-certify that they qualify for a WDA distribution.
To learn more about how Vanguard is complying with this provision, read the Withdrawals for Domestic Abuse brochure.
Background and perspective
This provision permits a distribution of up to $22,000 for individuals affected by a federally declared disaster. Eligible participants are not subject to the 10% early withdrawal penalty, and the distribution may be repaid within three years. Vanguard began offering this provision on January 1, 2024. In order to provide a more streamlined and consistent experience, Vanguard has now implemented a systematic distribution limit of $22,000 per QDRD request, as well as built-in online eligibility rules. Vanguard is continuously working to ensure that we offer the best possible experience to our clients and participants.
Plan sponsor considerations and resources
- Disasters can encompass more than just environmental hazards, so you may benefit from a more holistic internal risk assessment to feel confident in your choice to adopt this optional provision.
- Plan demographics, savings trends, and industry-specific considerations can help inform your decision on whether this provision is a good fit for your organization.
- You may also want to consider the geographic location of your workforce in case it has a historically high rate of natural disasters or other risk factors.
To learn more about how Vanguard is complying with this provision, read the Qualified Disaster Recovery Distribution brochure.
Additional optional provisions available:
Background and perspective
When a participant separates from service, the employer may choose to distribute (that is, cash out) the participant’s vested account balance without consent if the balance is less than $5,000 (or less as prescribed by the plan). Amounts between $1,000.01 and $5,000 are automatically rolled into an IRA, while amounts of $1,000 or less are paid as a lump sum. SECURE 2.0 gives plan sponsors the option to increase this limit from $5,000 to $7,000.
Plan sponsor considerations and resources
- Plan sponsors should look at several factors when considering whether to adopt this optional provision, including workforce population, missing participant rates, and retirement plan leakage.
- Increasing your plan’s automatic cash-out limit may help ease the administrative effort associated with small balance accounts and reduce the risk of unclaimed participant assets.
Background and perspective
The Bipartisan Budget Act of 2018 (BBA) expanded the hardship rules for 401(k) plans to include more contribution sources and changed the requirement that a loan be taken out prior to a hardship withdrawal. This optional provision of SECURE 2.0 removes inconsistencies between hardship rules for 401(k) plans and 403(b) plans by allowing 403(b) plan participants to receive hardship distributions from salary reduction contributions; qualified nonelective contributions (QNECs); qualified matching contributions (QMACs); and account earnings on any salary reduction contributions, QNECs, and QMACs.
Plan sponsor considerations and resources
- SECURE 2.0 aligned the rules for 403(b) hardship distributions with those for 401(k) hardship distributions. As a result of this alignment, 403(b) plan sponsors may want to consider whether they will allow qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings on elective deferrals to be made available for hardship distributions.
- The introduction of these streamlined hardship distribution provisions could alleviate the administrative burden for plan sponsors and administrators.
Background and perspective
Under this optional provision of SECURE 2.0, participants can elect to defer compensation in a current month as long as the deferral agreement is entered into before the compensation is made available. It does not modify the deferral timing for 457(b) plans of nongovernment tax-exempt entities.
Plan sponsor considerations and resources
- Plan sponsors who would like to adopt this provision should reach out to their client success executive.
- For plan sponsors who decide to make this change, a plan amendment will be required:
- Eligible 457(b) plans sponsored by a state or local government must be amended the later of December 31, 2029, or, if applicable, the first day of the plan year beginning more than 180 days after the date the Secretary of the Treasury notifies the plan that it was administered in a manner inconsistent with Section 457(b).
Reminder: Plan amendment deadlines
Now that 2025 is underway, plan sponsors should review their plan documents to assess areas that require updates to ensure compliance now and in the years to come. At the end of 2023, IRS Notice 2024-2 extended the deadline for plan amendments relating to the CARES Act, the SECURE Act, and SECURE 2.0. Therefore, no mandatory amendments are due by the end of 2025. However, plan sponsors should decide if making certain amendments now (for example, changes from the CARES Act of 2020) would make sense for their individual plans when it comes to operations and changes already implemented. While many SECURE 2.0 provisions have already taken effect, plan sponsors may want to consider waiting to amend their plans to accommodate future provisions and further government guidance.
Vanguard will continue to share the following important deadlines with you throughout 2025 and beyond:
