Navigating the 2025 SECURE 2.0 Act: Key Updates Every Business Owner Needs to Know

The Secure 2.0 Act of 2022 expands on the original SECURE Act of 2019, introducing 92 new provisions to enhance retirement savings opportunities, boost business incentives, and offer greater flexibility for savers.

Stay ahead by understanding the final regulations issued by the IRS earlier this year to the Secure (Setting Every Community Up for Retirement) Act 2.0. These changes to employer-sponsored retirement plans could impact your company.

Necessary changes in company-sponsored retirement plans must be made before 1/1/25 or during 2025.

Although the changes may be complex, this guide provides an overview of what small business owners need to watch for in the coming year.

How SECURE 2.0 Act Changes Will Impact Your Business in 2025

Consider working with a strategic business advisor using the list below as a guide to ensure you are not only compliant with all necessary plans, but also can take advantage of those that apply to your company.

1. Mandatory Automatic Enrollment & Escalation

The SECURE 2.0 Act requires defined contribution plans created after 12/29/2022 to include provisions that would automatically enroll employees once eligible. The initial automatic savings rate must be at least 3% but no more than 10%.

What else does that mean for you?

• Starting January 1, 2025, employee deferral rate must automatically increase by 1% each year. This increase will continue annually until the savings rate reaches a minimum of 10% but will not exceed 15%.

What You Need to Do:

• Review your company’s retirement plans now and if necessary, modify them to include the automatic enrollment and deferral escalation language.
• Work with your human resources and payroll processor to make sure that any changes needed within your organization to implement and communicate the enrollment and escalation provisions to the company’s employees are in place.
• Note: employees may elect out of saving at any point; the overall goal of this provision is to increase participation by requiring employees to opt-out instead of opting in to the plan.

The other 3 items to note under this provision include: 

• Grandfathering Provisions: SECURE 2.0 mandates automatic enrollment in 401(k) and 403(b) plans established after December 29, 2022.  The act includes grandfathering provisions for plans adopted before that date. Verify with your company’s plan administrator whether it qualifies to be a grandfathered plan.
• Safe Harbor Correction: The Notice expands the safe harbor for correcting automatic enrollment errors, aligning with previous guidance but with key differences, including provisions for self-correcting, handling of terminated employees’ contributions and updated deadlines for allocating matching contributions.

Extended Amendment Deadlines: The deadlines for adopting plan amendments under SECURE 2.0 and related acts have been extended by an additional year. The new deadline for most nongovernmental plans is the end  of the first plan year beginning on or after January 1, 2025.  Companies who comply with the act in year 2025 have until December 31, 2025 to make the necessary changes to their retirement plan documents.

2. The Beginning of “Starter K” and Other Contribution Changes:

Starter K Plans:  Small employers have struggled to justify 401K plans due to the administrative burden and its related cost.  The Act introduces a low-deferral, no-match plan that removes much of that burden.  If these circumstances fit your company and you have not implemented a different type of retirement plan, you may want to explore offering this new 401K option.  “Starter K” plans allow employees to contribute a maximum of $6,000 indexed annually, with a $1,000 catch-up for those 50 or over.  Employer match contributions are not allowed.  These plans do not require compliance with certain participation and non-discrimination (highly compensated) standards or the related reporting

Catch-up Contributions: The Act introduced a new tier of catch-up contributions for employees aged 60 to 63 that went into effect in 2024.  The limit in 2025 increases to $10,000 and is indexed annually for inflation.  It is important to note that eligible employees who wish to take advantage of this new catch-up contribution and earn more than $145,000 in a calendar year are required to contribute these catch-up contributions after-tax into a ROTH plan.  If your company has employees aged 60-63 who exceed the $145,000 earnings and wish to take advantage of the additional catch-up contributions, you may need to add a ROTH retirement plan to your offered benefits and make sure the related payroll deduction is post-tax, not pre-tax.

RMD’s: The Act significantly changes the limits and rules for required minimum distributions (RMD’s) which are beyond the scope of this newsletter.  It is prudent for every company who has employees aged 70 or older to work with human resources and the retirement plan administrator to communicate the changes to those employees and encourage them to be proactive to review and understand the new rules and how they affect their retirement landscape.

Below is a helpful breakdown of account limits by numbers:

Starting in 2025, below are the IRA and ROTH account limits:

• Under Age 50 = $7,000
• Over Age 50 = $8,000 ($1,000 catch up will now be adjusted for inflation (AFI))

401(k) limits:

• Under Age 50 = $23,000
• Over Age 50 = $30,500 ($7,500 catch up)
• *Ages 60-63 = $33,500 (catch up increased to the greater of $10,000 AFI or 150% of regular catch up)

SIMPLE IRA limits:

• Under Age 50 = $16,000
• Over Age 50 = $19,500 ($3,500 catch up)
• *Ages 60-63 = $24,500 (catch up increased to the greater of $5,000 AFI or 150% of regular catch up)  Subject to taxable compensation limits

  3. Student Loan Matching

The Act created an added benefit companies can offer to their employees. Plans that began after December 31, 2023, can have retirement plan contributions made by the employer that match an employee’s student loan payments. Please note that when calculating the match, the total of student loan payments and elective deferrals cannot exceed the annual participant contribution limit ($22,500 for 2023). In other words, employers can provide a retirement plan that matches contribution based on an employee’s student loan payments (instead of matching employee retirement contributions).

Example: An employee earns $50,000 annually and pays $500 per month ($6,000 annually / 12% of salary) toward student loans.  They cannot afford to save for retirement on top of student loan payments. The employer has an existing retirement plan that matches 4% of employee deferrals.  If the student loan provision is added to the retirement plan documents, the employer can now deposit $2,000 ($50,000 X 4%) in the employee’s retirement account even if employee contributes nothing.  This student loan match qualifies as a valid business expense treated the same as the other plan match expense for business tax purposes.

4. More Opportunities for Part-time Work

The new Act’s provisions require employers to offer retirement plan benefits to long-time part time workers for plans created after December 31, 2024.  Your company’s current retirement plan was created prior to this date but it is recommended that you check with your plan administrator to confirm that it is grandfathered under the pre-SECURE 2.0 Act rules.  If your company employs a lot of part time workers and high employee turnover is a detrimental issue, you may want to discuss the pros and cons of adding this benefit with your human resources, plan administrator and business advisor.

Final Thoughts
All business owners reading this article should be aware of 3 final things:

• They have until the end of the first plan year beginning on or after January 1, 2025 (instead of 2022) to amend their Plan documents to comply with required provisions under Secure Act, Secure 2.0 Act, Cares Act, and Taxpayer Certainty & Disaster Tax Relief Act.
• Employers can operate in year 2025 as though those future amendments are already made.
• Current laws require a multitude of notices regarding the Plan and Plan activities to be sent to all employees (even if employees opted out of participation in the Plan). Non-plan participants must now receive an annual participation reminder of any requested documents.

Understanding all the details and ensuring compliance with the SECURE Act 2.0 can feel overwhelming for many business owners. That’s why working with all of your employee compliance team, including partnering with a trusted strategic business advisor and CFO, like B2B CFO, can make a significant difference in how effectively the changes are implemented in your organization. B2B CFO provides the guidance and support you need to stay ahead, putting you in the driver’s seat with the confidence to manage your business’s financial future effectively.