SECURE 2.0 quarterly update
Regulatory roundup
Guidance on required provisions
IRS Announcement 2025-02
Background
In July 2024, the Treasury Department and IRS issued final RMD regulations covering some changes from the SECURE Act and SECURE 2.0. At the same time, the IRS issued proposed regulations on certain RMD provisions of SECURE 2.0. IRS Announcement 2025-02, released on December 18, 2024, delays the effective date of certain proposed RMD regulations until January 1, 2026.
Key takeaways
- Following a public hearing and industry comments after the Treasury Department and IRS guidance released in July 2024, the IRS is expected to announce a delay in the effective date of some proposed regulations.
- Proposed RMD regulations that will be delayed until January 1, 2026, include (among others):
- Special treatment of successor beneficiaries following the death of a spousal beneficiary.
- Use of the Uniform Life Table by a spousal beneficiary.
- The treatment of distributions from in-plan Roth accounts prior to a participant’s death with respect to lifetime RMD obligations.
- Compliance with the final regulations and portions of the proposed RMD regulation not impacted by IRS Announcement 2025-02 was required as of January 1, 2025, with amendments for most plans due January 1, 2026.
You can read the full IRS Announcement 2025-02 here.
IRS proposed regulation
Background
On January 14, 2025, the IRS and Treasury Department issued proposed regulations on the SECURE 2.0 provision mandating automatic enrollment for new plans. Under SECURE 2.0, 401(k) and 403(b) plans established after December 29, 2022, must provide for automatic enrollment and automatic escalation for plan years beginning on or after January 1, 2025.
Key takeaways
- An employer will be considered to have employed 10 or fewer employees during a year if it had 10 or fewer employees on at least 50% of its typical business days during that year. Part-time employees will be counted as a fraction of an employee based on a ratio of the number of hours worked versus the number of hours that typically must be worked to be considered a full-time employee.
- If a grandfathered plan (created before the enactment of SECURE 2.0 on December 29, 2022) joins a multiple employer plan (MEP) that was created or includes plans that were created after SECURE 2.0, the grandfathered plan keeps its grandfathered status.
- Automatic enrollment applies to all participants in the plan, with one narrow exception: Participants hired before a plan’s automatic enrollment provision took effect, who already had an affirmative election in place, do not need to be automatically enrolled because their prior election remains valid.
You can read the full IRS proposed regulation here.
IRS proposed regulation
Background
On January 13, 2025, the IRS issued a proposed regulation addressing the SECURE 2.0 provisions that pertain to catch-up contributions. This regulation covers, among others, the required Roth catch-up contribution provision, which requires certain catch-up contributions be made in the form of Roth contributions for individuals who exceed a FICA wage threshold.
Key takeaways
- A plan can continue to offer catch-up contributions even if it does not allow Roth contributions.
- Plans cannot require that all catch-up contributions be Roth contributions.
- FICA wages would be defined by reference to Social Security taxes and are not prorated for an individual’s year of hire.
- Plans will be permitted to provide that a participant who is subject to the mandatory Roth catch-up requirement is deemed to have irrevocably designated any catch-up contributions as designated Roth contributions.
- If a participant is subject to the mandatory Roth catch-up rules and a catch-up contribution is incorrectly contributed as regular (pre-tax) catch-up, the plan can correct the failure by distributing the pre-tax catch-up contribution(s) that should have been Roth.
- If a dual-qualified Puerto Rico plan permits Roth catch-up contributions for United States employees, the plan will be treated as satisfying the mandatory Roth catch-up contribution requirements if Puerto Rico employees are eligible to make catch-up contributions as traditional after-tax contributions.
You can read the full IRS proposed regulation here.
Guidance on optional provisions
IRS proposed regulation
Background
On January 13, 2025, the IRS issued a proposed regulation addressing the SECURE 2.0 provisions that pertain to catch-up contributions. This regulation covers, among others, the optional higher catch-up contribution limit provision regarding enhanced catch-up contributions available for plan participants who are ages 60 to 63.
Key takeaways
- The offering of higher catch-up contributions to participants ages 60 to 63 is optional. If offered, the higher catch-up contribution limit applies to catch-up eligible participants who attain age 60, 61, 62, or 63 on the participant’s birthday occurring during the taxable year.
- A plan that offers catch-up contributions would not fail to satisfy the catch-up contribution universal availability requirements because the plan allows catch-up eligible participants who attain age 60, 61, 62, or 63 in a taxable year to make catch-up contributions up to the increased dollar limit while only allowing other catch-up eligible participants to make catch-up contributions up to the regular catch-up dollar amount.
You can read the full IRS proposed regulation here.
For the provisions listed below, we are still anticipating guidance. We will update you with more information as it becomes available.
- RMD final regulations.
- Roth catch-up contribution final regulations.
- Matching contributions for student loans.
- CIT expansion to 403(b) plans.
- Technical corrections bill.
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:
