This insight discusses some of the more relevant provisions for plans in 2025.

Optional provisions

Emergency funds

SECURE 2.0 includes a number of provisions aimed at allowing participants to access funds in time of need. While hardship distributions for specified purposes have been available for a long time, SECURE 2.0 provides for two alternative approaches under which a plan can allow a participant to take funds from DC plans with elective contributions for ordinary emergency expenses, such as the repair of an automobile:

• One approach allows the plan to allow penalty-free distributions of up to $1,000 for emergencies.
• The other approach allows placement of up to $2,500 in a pension-linked emergency savings account (PLESA), which can later be distributed on a penalty-free and tax-free basis.

There are specific rules and restrictions on the inclusion of these provisions. Both the DOL and the IRS have issued guidance. For more information, see our January 18, 2024 insight, February 7, 2024 insight and our July 2, 2024 insight.

SECURE 2.0 also included provisions to allow in-service and penalty-free distributions in special circumstances, such as domestic abuse, which we covered in our July 2, 2024 insight and declared by the president, which we covered in our May 13, 2024 insight.

Student debt payment

SECURE 2.0 allows an employer to treat repayment of student debt as a trigger for matching contributions subject to special conditions. Some employers found that employees could not afford to make elective contributions to their 401(k) plan because they had large student debt payments. To allow these students to benefit from employer matching contributions, SECURE 2.0 created an exception to the rule that employers could only make matching contributions if the employee makes an elective contribution to the plan.

Employers asked the IRS to make clear that a student debt provision can be eliminated prospectively. See our September 19, 2024 insight on the IRS guidance.

Catch-up contributions

Participants age 50 and older may make catch-up contributions. SECURE 2.0 increased the catch-up contributions that participants age 60, 61, 62 and 63 can make. These contributions, which currently can be made as pre-tax or Roth, increase the total catch-up contributions to 150 percent of the existing limit for those age 60–63. Starting in 2026, these contributions (as well as any other catch-up contributions) can only be made as Roth contributions if the participants wages exceed the limit on which FICA old age taxes are cut off. For a discussion of the 2026 Roth requirement, see our August 30, 2023 insight.

Matching and employer contributions as Roth contributions

SECURE 2.0 allowed plan sponsors to permit participants to treat matching and nonelective Roth contributions in the same manner as elective contributions. No employer must offer the Roth alternative and no employee must be required to elect the Roth alternative. If, however, the employer establishes the option and the employee elects the option, the designated contribution is includible in an individual’s gross income (but, generally not for employment tax purposes) for the taxable year in which the contribution is allocated to the individual’s account. See our January 12, 2024 insight.

Other effective provisions

Automatic enrollment

SECURE 2.0 requires new 401(k) and 403(b) plans to implement automatic enrollment of participants beginning in 2025, with a delay for new businesses and an exception for very small plans. A new plan is essentially a plan that was established after SECURE 2.0’s effective date of December 29, 2022.

It appears that a multiemployer plan that was established before December 29, 2022 can accept a new employer without providing automatic enrollment for that employer’s employees. The opposite rule appears to apply for multiple employer plans accepting a new employer. However, until final regulations are issued, there remains questions about whether this interpretation will continue to apply. See our January 12, 2024 insight.

Self-correction and overpayments

SECURE 2.0 expanded the types of mistakes for which plans could self-correct and instructed the IRS to revise the Employee Plans Compliance Resolution System (EPCRS) Revenue Procedure to reflect the changes. The statutory changes were effective with the passage of SECURE 2.0, even though the EPCRS was not yet changed. The IRS issued guidance on the SECURE 2.0 change, which we summarized in our June 1, 2023 insight.

SECURE 2.0 also made changes in the EPCRS rules for overpayment of benefits and the overpayment collection rules under ERISA. The IRS has issued guidance (see our October 21, 2024 insight), but the DOL hasn’t issued guidance on the SECURE 2.0 restrictions on plans that wish to collect from participants on an inadvertent overpayment.

Long-term, part-time employees

SECURE required 401(k) plans to provide elective deferral elections to “long-term, part-time employees.” SECURE defined the category as employees who worked at least 500 hours in three consecutive years. SECURE 2.0 changed the definition to two consecutive years and also included ERISA 403(b) plans. The SECURE provision was effective in 2023 and the SECURE 2.0 changes were effective for 2025. For more information, see our December 20, 2023 insight and our October 9, 2024 insight.

Amendment dates

Amendments for SECURE 2.0 provisions, whether mandatory or discretionary, may be delayed (along with those for SECURE Act and CARES Act provisions) as long as the eventual amendment is consistent with operation. Generally, sponsors must amend single-employer plans by December 31, 2026, multiemployer plans by December 31, 2028, and governmental plans by either December 31, 2028 or 2029, depending on the type of plan. Note that the relief dates are December 31 for all plans, not the last day of the plan year. See our January 12, 2024 insight.

Discretionary amendments for SECURE 2.0 (and the SECURE and CARES Acts) should be distinguished from other discretionary amendments, which sponsors still must adopt by the last day of the plan year in which the amendment is effective, retroactive to the amendment’s effective date. Therefore, calendar-year plans must adopt such discretionary amendments by December 31, 2024.

Next steps

Most recordkeepers have developed the necessary procedures to implement SECURE 2.0 provisions and allow plans to select which optional provisions they wish to adopt for 2025.

Some sponsors may want to amend plans in 2025 once the decision is made to offer these options. However, plan amendment is not necessary to implement the optional provisions, as long as a future amendment is made timely, is retroactive and is consistent with plan operation.