SECURE 2.0—2025 look ahead

The second part of the long-term part-time (LTPT) worker eligibility provision takes effect on January 1, 2025, by expanding the provision to 403(b) plans and solely qualified Puerto Rico plan types. LTPT employees who work at least 500 hours in each of two consecutive years will be eligible to make elective deferrals to their employer’s retirement savings plan. This is a change from the previously enacted provision, which required working at least 500 hours for three years before employees were eligible.

Automatic enrollment allows an employer to automatically deduct elective deferrals from an employee’s wages unless the employee makes an election to either not contribute or contribute a different amount. Beginning January 1, 2025, employers who have been in business for three or more years and have more than 10 employees must implement an automatic enrollment provision for a new 401(k) or 403(b) plan established on or after December 29, 2022. In December 2023, the IRS delivered SECURE 2.0 “grab bag” guidance, which provided additional clarification on this provision. Plan sponsors should partner with both their in-house counsel and Vanguard to determine if they’re impacted.

Additional requirements of this provision state:

Existing plans aren’t required to offer automatic enrollment.

This provision doesn’t apply to church or government plans.

Beginning January 1, 2025, the initial deferral percentage:

• Must be at least 3% but can’t exceed 10%.
• Must automatically increase yearly by 1% until reaching at least 10% (but not exceeding 15%).

Automatically enrolled participants can elect to defer a higher or lower percentage or may choose not to defer.

The Department of Labor (DOL) is seeking to reunite employees with lost retirement savings they have earned by establishing a searchable online retirement savings lost-and-found database that will enable workers to locate retirement benefits that they may be entitled to. No transfer of assets would be required. In April of this year, the DOL issued a Notice of Proposed Information Collection Request asking plan sponsors to provide extensive plan and participant data for the database. We expect more information from the DOL surrounding this, but in the meantime, plan sponsors should consider that:

• Certain participant information must be provided to the DOL to help populate the database for plan years beginning on or after January 1, 2024.
• Initially, information would be voluntarily furnished for this database as an attachment to the Form 5500, beginning with the 2023 plan year filing. Subsequently, the DOL intends to establish a portal for plans to submit this information directly to the database.
  

Vanguard will offer these provisions to plan sponsors starting in the first quarter of 2025, and we’ll share more details on the implementation process in the coming months.

Higher catch-up contribution limit: Under this provision beginning January 1, 2025, SECURE 2.0 increases the catch-up limit for participants ages 60–63 to the greater of $10,000 or 150% of the then current catch-up limit. This will give participants an opportunity to boost their savings as they approach retirement. Vanguard is actively working on a solution to support this provision so it can be offered during the first quarter of 2025. Clients will be able to adopt this provision as soon as it becomes effective but can also decide to opt in to this provision at a later date. While Vanguard’s work is underway, there are several steps plan sponsors can take now to evaluate and prepare for this provision:

• Plan sponsors should start to work with their payroll provider 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 60–63).
• Begin to educate employees about their new rights under this provision and the benefits of how it can promote retirement savings.

Withdrawals for domestic abuse (WDA): This new type of distribution gives plan sponsors another way to support survivors, by allowing domestic abuse victims to take an in-service distribution from the plan in the amount $10,000 or 50% of the participant’s vested account balance, whichever is less, without being subject to the 10% early withdrawal penalty. The amount may be repaid within three years of the distribution. Plan sponsors considering this provision should think about how it fits in with their benefits package to best support employees.

Self-certification for hardship withdrawals: As part of the SECURE 2.0 Act, the optional self-certification for hardship withdrawals provision modifies current hardship rules to allow plans to permit participants to self-certify that a distribution meets the requirements for a withdrawal and helps remove an administrative barrier for those in need of financial assistance. With this change, plan sponsors are no longer required to obtain documentation or have a participant provide specific information on the need for a hardship withdrawal.

We encourage plan sponsors to determine if they want to provide easier access to retirement funds for hardships, review their current number of hardship withdrawal requests, and evaluate the current level of documentation efforts and administrative burden to determine if self-certification would benefit them and their employees.

Emergency expense withdrawals: This new withdrawal provision gives employees access to their retirement funds with a distribution of up to $1,000 for personal or family emergency expenses. Only one distribution per year is allowed, and participants can’t take additional distributions for three calendar years unless they repay their first distribution. Plan sponsors considering this provision should look at the age and retirement preparedness of their employees.