The Secure Act 2.0 was signed into law in 2022 to improve employer retirement plans and encourage employee participation.  These types of plans include 401(k)s, 403(b)s, Simple IRAs, and others. This law created new features available to participants and business owners/plan sponsors. While it included over 90 provisions, some optional, this blog will cover key changes coming over the next 3 years. It is important to review and stay up to date with how these changes could impact your own personal 401(k) and planning strategies. 

Key provisions beginning in 2024:

  • Section 110: Matching Contributions for Student Loan Payments – This is an optional provision that can be added to a Plan to assist participants with their student loans. Employers can match student loan payments in a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA. It is expected that the participants must provide certification of loan payments and they must be qualified. Check with your plan to see if this option is available and the rules surrounding it. 
  • Section 115: Emergency Expenses – Annually, a participant can get an exception for up to $1,000 to be used for emergency expenses. The participant can repay this amount within 3 years. This provides more flexibility to access your account prior to full retirement age. Keep in mind, we recommend trying to avoid using funds prior to retirement as it may have negative long-term impacts.
  • Section 127: Emergency Savings Account – To help participants with emergency savings situations, there will be an optional provision which allows a retirement plan to add an emergency savings account. It will allow for $2,500 (subject to increase with inflation) and is for non-highly compensated employees only. These contributions will be contributed as Roth and are match eligible. There are a few different rules for distribution that will apply 1) for the first 4 withdrawals there will be no fee, 2) withdrawals will be monthly, and 3) the funds can only be invested in preservation of principle investments.
  • Section 304: Terminated Participants with a balance of under $7,000 can now be moved without consent from the participant. Previously this figure was $5,000. Make sure to speak with your advisor when you discontinue employment about what to do with your former employer Retirement Plan. It is common for small balances in old 401(k)’s to be unclaimed and you should try to keep your information current.
  • Section 603: Roth Catch-up for High Earners – After turning 50, any participant earning over the threshold of $145,000 in the previous year must make catchup contributions as Roth. These amounts will be indexed moving forward. This is a mandatory provision. If under this income threshold, other rules apply. 

Key Provisions beginning in 2025:

  • Section 101: Auto-Enrollment – Requirement with few exceptions. 401(k) and 403(b) Plans will be required to have auto-enrollment and auto escalation. The initial enrollment percentage is 3% but no more than 10%. Each following year, the amount is 1% annually until it reaches at least 10% but no more than 15%. Exceptions include if a small employer with 10 or fewer employees, new business less than 3 years old, or governmental or church Plan. 
  • Section 109: Catchup Contribution Changes – Catch-up contributions will increase for the age group of 60-63 in the year 2025. This amount will be the greater of $10,000 or an indexed limit (150% of the 2024 limit).  As in the past, it will always be subject to inflation adjustments. Another unique takeaway from the Secure Act is that contribution catch-up limits for 50-60 years have not been clearly listed. While it is expected that there will be something similar in place as before with inflation adjustments, there are many unknowns about this age range still.
  • Section 125: Long-Term/Part-Time Employees – After 2 years of service, part time employees in a 401(k) will be eligible to contribute after 2024. This is a mandatory requirement. It was 3 years prior to this change and is now also extended to 403(b) Plans. 
  • Section 303: New database for lost funds – The Department of Labor (DOL) is required to create an online database to help participants find unclaimed retirement funds by the end of 2024. Administrators will be required to provide certain information for this. This will be mandatory, and plans will report data for Plan years after 2023. Make sure to check if you have any previous employer funds you have been unable to track down. 

Key Provisions beginning in 2026:

  • Section 338: Paper Statement Requirement – Depending on the plan, there is a new mandatory requirement beginning after December 31st, 2025. For a defined contribution plan, a paper statement must be sent once per year. For a defined benefit plan, a paper statement must be sent once every 3 years. Participants can elect to request electronic statements in some cases. 

Conclusion:

Overall, the Secure Act 2.0 has added more flexibility and motivation for investors to contribute and utilize these plans. As pensions have become less available, these accounts are a major staple in being able to retire “on time”. Understanding the new laws could have a major impact in the long run. It is recommended to review your plan documents at least once a year to review these changes. If you do not have a lot of experience with these plans, surround yourself with a team of professionals to ask questions and help meet your goals.

Joshua VanderGraaff
Employer Retirement Plan Advisor

Disclosures:

This is provided for informational purposes only and should not be interpreted in any way as investment, tax, accounting, legal or regulatory advice. An investor must take into consideration his/her individual circumstances. 

There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.  All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their wealth advisor prior to making any investment decision.

Secure Act 2.0 sources used

  • Webinar Follow Up ─ SECURE 2.0. Part 1: Changes to Retirement Plan Eligibility and Contributions (Professional Capital Services) 
  • https://www.fidelity.com/learning-center/personal-finance/secure-act-2 
  • https://www.pcsretirement.com/news/SECURE%20Act%202%20is%20Finally%20Here
  • https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2024/q1/secure-2-0-act-cheat-sheet.html