To ensure plan sponsors and participants fully benefit from SECURE 2.0 provisions, service providers such as recordkeepers, financial advisors, and third-party administrators (TPAs), must adjust their services and offerings to align with new or modified regulations. Service providers must navigate and balance compliance challenges, streamline implementation efficiency, and adapt to changes all while bridging the gap between recordkeepers, plan sponsors, and participant outcomes.
Margie Brown, Principal Consultant
Below is an overview of three key provisions making significant impacts effective 2025!
Enhanced Automatic Enrollment Feature (SECURE 2.0 §101): This provision mandates that most new 401(k) and ERISA-covered 403(b) plans established after December 29, 2022 must automatically enroll eligible employees at a contribution rate between 3%-10% of compensation. This rate must automatically increase by 1% annually until it reaches a minimum of at least 10%, up to a maximum of 15%. This provision is designed to boost plan participation and improve retirement outcomes by encouraging consistent and ongoing savings.
Higher Catch-Up Contributions for Workers ages 60 through 63 years (SECURE 2.0 §109): SECURE 2.0 significantly enhances the catch-up contribution limits for employees aged 60 to 63 years. The limit is increased to the greater of (1) $10,000.00 (indexed) or (2) 150% of the regular catch-up contributions. The law increases the catch-up contribution limit and adjusts it for inflation, allowing workers to save more as they approach retirement.
Reduced Service Requirement Long-Term Part-Time (LTPT) Employees (SECURE 2.0 §125): LTPT rules will now apply to both 401(k) and ERISA-covered 403(b) plan. The three consecutive years is reduced to two consecutive years, employees must work at least 500 hours each of the two years and attain the age of 21 by the end of the second year to be eligible. The intention of this rule is to expand retirement savings opportunities for employees who might have previously been excluded from employer-sponsored plans.
Steps Service Providers Should Take to Support Both Plan Sponsors and Participants
Systems and Platforms: Update/enhance recordkeeping systems, thresholds, and platforms to support and comply with new regulatory requirements. This includes automating services to help reduce the burden of administration. Some provisions may require a sophisticated and advanced recordkeeping system to ensure that capabilities meet the required standards.
Support Disclosure and Notice Requirements: Service Providers should assist and/or furnish plan sponsors with applicable disclosure and notices in a compliant and time manner.
Educate Participants and Improve Retirement Literacy: Service providers need to proactively provide easy-to-understand educational materials, which are engaging, and available in various formats (online, in-person, and on-demand) to accommodate diverse learning preferences. These materials should explain new and/or modified SECURE 2.0 regulations, along with the intention of the provision, and any implications due to the change. Providers should offer tailored workshops, webinars, and tools that help participants factor in their age and account balances to meet their specific retirement goals.
Permit Customization: Service providers should continue to develop their product and service offerings to deliver the best possible participant experience. This includes offering the ability to utilize certain customization based on an employer’s workforce needs.
Coordinate and Align with Stakeholders: Certain SECURE 2.0 provisions will require service providers to work closely with both the plan sponsor and their payroll provider for seamless integration. This alignment is essential to ensure operational accuracy and ultimately deliver better participant outcomes.
The SECURE 2.0 Act provisions represent a significant step forward in enhancing retirement savings and improve the financial security of American workers. By staying ahead of these legislative provisions, service providers are in a unique position to take the lead in strengthening relationships while empowering and guiding their clients through this evolving retirement landscape.
Our Retirement Plan Compliance Services (RPCS) team is highly skilled and can assist you with tailored solutions to suit your needs, Plan Document Services (regulatory plan amendments, restatements, new plan onboarding, and plan design changes), Government Form Filling, Audit & Operation Support, & Compliance Testing.
Email us: compliance@enterpriseiron.com
The materials contained herein is general and prepared for informational purposes only and shall not be construed as constituting legal or tax advice. Tax laws and regulations are complex, and some content is subject to interpretation of the law and subject to change as further regulatory guidance is published. Please consult your own independent attorney or tax professional regarding your specific situation.