The SECURE Act 1.0 (2019) and SECURE Act 2.0 (2022) have introduced transformative changes to 401(k) and 403(b) retirement plans, aimed at expanding access, increasing savings, and simplifying compliance for businesses, nonprofits, and plan participants. As of January 1, 2025, several provisions are already in effect, while others are slated to take effect on January 1, 2026. This article outlines the key changes relevant to employers/plan sponsors ensuring you stay informed and compliant. Below, we detail the key provisions effective as of 1/1/2025, those expected for 1/1/2026, and provide a visual summary for quick reference.

Changes Effective as of January 1, 2025

1. Mandatory Automatic Enrollment for New Plans

SECURE 2.0 mandates that all new 401(k) and 403(b) plans established after December 29, 2022, must include an Eligible Automatic Contribution Arrangement (EACA) for plan years beginning after December 31, 2024. This applies to small businesses and nonprofits launching new plans, requiring:

• Initial Default Rate: Between 3% and 10% of employee compensation.
• Annual Escalation: Increase by at least 1% annually until reaching at least 10% (but no more than 15%).
• Opt-Out Option: Employees can opt out or adjust contribution levels.

Exemptions: Businesses with 10 or fewer employees, those in operation for less than three years, governmental plans, church plans, and SIMPLE 401(k) plans.

Impact: This provision boosts participation rates, particularly for employees who might otherwise delay enrollment. Plan sponsors must update payroll systems and communicate clearly with employees to ensure compliance and minimize opt-out confusion.

2. Enhanced Catch-Up Contributions for Ages 60–63

For plan years beginning after December 31, 2024, SECURE 2.0 allows 401(k), 403(b), and governmental 457(b) plans to offer higher catch-up contribution limits for participants aged 60–63 (but not 64 or older). The limit is the greater of:

• $10,000 (indexed for inflation), or
• 150% of the standard catch-up limit ($7,500 for 2025).

For 2025, this translates to a catch-up limit of $11,250 for eligible participants, compared to $7,500 for those aged 50–59 or 64 and older.

Impact: This provision enables employees nearing retirement to accelerate savings. Plan sponsors should ensure payroll and recordkeeping systems can track age-based contribution limits accurately. Financial advisors can leverage this to guide clients in maximizing contributions during this four-year window.

3. Reduced Long-Term Part-Time (LTPT) Employee Eligibility Period

SECURE 1.0 introduced rules allowing long-term part-time (LTPT) employees to participate in 401(k) plans after working 500+ hours per year for three consecutive years, effective for plan years beginning after December 31, 2020. SECURE 2.0 reduces this requirement to two consecutive years for plan years beginning after December 31, 2024, and extends it to ERISA-covered 403(b) plans. Employees must also be at least 21 by the end of the second 12-month period.

• Implementation: Employers must track hours for part-time and seasonal employees starting from 2023 for 403(b) plans and 2021 for 401(k) plans to identify eligible LTPT employees.
• Vesting: LTPT employees receive vesting credit for each year with 500+ hours, effective from 2023.

Impact: This change broadens access for part-time workers, particularly in nonprofits and small businesses with flexible workforces. Plan sponsors must update plan documents and payroll systems to comply, while CPAs and advisors should educate clients on tracking and reporting requirements.

Changes Effective as of January 1, 2026

1. Roth Catch-Up Contributions for High Earners

Section 603 of SECURE 2.0 requires that catch-up contributions for participants with prior-year FICA wages exceeding $145,000 (indexed for inflation) must be made on a Roth (after-tax) basis in 401(k), 403(b), and governmental 457(b) plans. Initially set for 2024, IRS Notice 2023-62 delayed this to January 1, 2026.

• Implementation: Plans must offer Roth contribution options for catch-up contributions if they allow them. If no Roth option is available, high earners cannot make catch-up contributions.
• Exemption: Participants earning $145,000 or less can continue making pre-tax catch-up contributions.

Impact: This change affects higher earners and requires plan sponsors to update systems to track income thresholds and contribution types. Financial advisors should prepare clients for the tax implications of Roth contributions, while CPAs can assist with payroll adjustments.

Compliance and Next Steps

To comply with these changes organizations should:

• Update Plan Documents: Work with their trusted retirement plan specialist to amend plans by December 31, 2026 to reflect SECURE 2.0 provisions.
• Enhance Payroll Systems: Ensure accurate tracking of hours, ages, and contribution types, especially for LTPT employees and catch-up contributions.
• Communicate with Employees: Notify participants of new options, such as enhanced catch-up contributions and automatic enrollment.
• Partner with Professionals: Collaborate with financial advisors, CPAs, and retirement plan specialists like NESA to navigate compliance and optimize plan design.