Preparing for 2025: What Plan Sponsors Need to Know About SECURE 2.0 and CARES Act Compliance
Published on by Jessica Doremus in Benefit Plan Audits
The SECURE 2.0 Act, enacted in December 2022, and ongoing provisions of the CARES Act continue to bring sweeping changes to retirement plan administration. With several impactful updates taking effect in 2024 and 2025, plan sponsors and administrators must proactively review, update, and communicate plan changes to remain compliant and offer competitive retirement benefits.
Here are the most critical updates and administrative considerations arising from the SECURE 2.0 Act and the IRS’s guidance on CARES Act compliance, especially those relevant for plan sponsors and administrators this year.
SECURE and CARES Act compliance deadline
The IRS has extended the deadline for adopting amendments under the original SECURE and CARES Acts to December 31, 2025, for non-governmental retirement plans (excluding 403(b) plans sponsored by public schools).
Plan sponsors can implement many provisions voluntarily, but must ensure that plan amendments reflect these updates by the stated deadline to maintain compliance.
Changes effective for the 2024 plan year
Long-term part-time (LTPT) employees
Beginning in 2024, employers must allow certain part-time employees to participate in their retirement plans. Employees who worked 500–999 hours annually for three consecutive years (2021–2023) and are at least 21 years old must be permitted to make elective deferrals.
Starting in 2025, the eligibility period is reduced to two consecutive years, easing the administrative burden of long-term tracking and broadening employee access.
Administrative Tip: Accurate hour tracking is crucial. While employers aren’t obligated to provide matching contributions to LTPT employees, allowing deferrals is mandatory.
Required minimum distributions (RMDs)
The RMD age has increased to 73 for those turning 73 after December 31, 2022, and will rise to 75 for those reaching age 74 after January 1, 2032. Starting in 2024, Roth accounts will be exempt from RMDs during the participant’s lifetime.
Student loan matching contributions
Employers may now treat qualified student loan payments as if they were elective deferrals for the purpose of matching contributions. Participants must annually certify their loan payments to receive the match.
See more details regarding student loan repayments.
Emergency expense withdrawals
Participants may take one penalty-free distribution of up to $1,000 per year for emergency expenses. Participants may self-certify their need and must repay the amount within three years to be eligible for another emergency withdrawal during that window.
Increased involuntary distribution threshold
The threshold for automatic cash-outs of small accounts has increased from $5,000 to $7,000. This update may help plans reduce participant counts and potentially ease annual audit requirements.
Pension-linked emergency savings accounts (ESAs)
New ESAs allow non-highly compensated employees to build after-tax emergency savings within their retirement plans:
- Contributions are capped at $2,500.
- The first four annual withdrawals must be free from fees.
- Employers may auto-enroll employees at up to 3% of compensation.
Recovery of retirement plan overpayments
Fiduciaries are no longer required to recover overpayments from retirees. If they choose to do so, they must adhere to safeguards, such as a 3-year recovery window and prohibition of interest charges.
Changes effective for the 2025 plan year, and for plans beginning after 12/13/2024
Enhanced catch-up contributions
Employees aged 60 to 63 may make larger catch-up contributions—whichever is greater: $10,000 or 150% of the standard catch-up amount for that year. This provision offers near-retirees a valuable opportunity to boost retirement savings.
Mandatory auto-enrollment for new plans
New 401(k) and 403(b) plans established after December 29, 2022, must include automatic enrollment features starting in 2025:
- Initial default contribution rate: 3–10%.
- Annual auto-escalation: +1% up to a maximum of 15%.
Exemptions apply to plans established before the enactment date, businesses with fewer than 10 employees, companies younger than three years, and church/governmental plans. However, multiemployer plans adding a 401(k) feature after the deadline are subject to these requirements.
Roth catch-up contribution requirement delayed
A previously scheduled rule requiring high-income earners (those earning over $145,000) to make catch-up contributions on a Roth basis has been delayed until 2026. This gives plan sponsors additional time to update administrative systems and payroll procedures.
Action steps for plan sponsors
- Review and amend plan documents: Evaluate whether to adopt optional provisions and ensure all mandatory updates are included.
- Update administrative systems: Ensure your payroll and recordkeeping systems can accommodate new eligibility rules, auto-enrollment, and Roth contributions.
- Enhance participant communication: Proactively educate employees about eligibility changes, new contribution opportunities, and plan features.
- Track employee hours diligently: Especially for LTPT eligibility, robust tracking is essential.
- Engage service providers early: Collaborate with TPAs, recordkeepers, and ERISA counsel to ensure smooth implementation.
For plan sponsors and administrators, the SECURE 2.0 Act represents a significant evolution in retirement plan legislation. The changes taking effect in 2025 build on earlier reforms by expanding participant access, increasing retirement readiness, and modernizing plan operations.
By preparing now, plan sponsors can ensure they remain compliant and continue to offer meaningful retirement benefits to their employees.
Additional resources
You may also be interested in our employee benefit plan audit video series, available on-demand, or the most recent 401(k) plan management survey. We also offer a series of compensation and benefits studies – useful tools for benchmarking your organization against others in our region.
If you have questions or need assistance interpreting the Secure 2.0 Act, Barnes Dennig has the answers. For additional information, contact us. As always, we’re here to help.
