It feels like Secure 2.0 has been around forever, yet new provisions are still rolling out.

Why? Because this legislation was designed to be implemented gradually. Some changes took effect right away in 2022, while others have been phased in over several years.

Now, as we kick off 2025, it's time to focus on what's new this year. These changes are crucial for both employers and employees as they plan for the year ahead. It's also important for TPAs to understand these updates, as they rely heavily on accurate data management to ensure compliance with regulations.

Let's dive into three key provisions that are effective this year:

• Expanding automatic enrollment

• Higher catch-up contributions for age 60-63

• Full-time part-time employee coverage

Expanding Automatic Enrollment to New Plans

401(k) plans have become the go-to savings option for millions of employees across America. But here's a surprise – a recent survey by Principal found that 59% of workers who weren't saving for retirement thought they were, and 49% believed they had been automatically enrolled. That's a huge disconnect!

Automatic enrollment has proven to be a game-changer, significantly boosting participation in 401(k) plans and helping employees save more for retirement. It's becoming more popular, with 47.1% of all U.S. plans using it, according to a 2025 PLANSPONSOR report. Companies see autoenrollment as a way to overcome employee inertia and complacency about their retirement benefits.

Until now, plan participation has been optional, but that's changing. Starting this year, all new 401(k) and 403(b) plans must include autoenrollment and autoescalation features. This means companies with 10 or more employees must enroll employees as soon as they're eligible.

Inertia at Play: Autoenrollment cleverly taps into the principle of inertia. As Sir Isaac Newton would say, an object stays at rest or in motion unless something nudges it. In the world of 401(k) plans, autoenrollment is that "nudge," getting employees to move from inaction to participation.

Employees often stick with the status quo – not participating – rather than taking active steps to do so. This despite the benefits of saving for retirement and potential employer matching contributions that can boost their savings.

Autoenrollment in Action: Under Secure 2.0, employers must automatically enroll new hires at a contribution rate of at least 3%, increasing by 1% each year until it hits 10-15%. This takes the decision off employees' plates. While they can opt-out or adjust contributions, most don't. Inertia wins, making participation easy. Once enrolled, employees usually stay put, their savings growing over time.

Implementation Essentials: Employers need to design their programs and systems carefully, ensuring default contribution rates, investment options, and communications are exactly what they want. Employees should have the chance to opt-out or tweak contributions and investments, with payroll and HR systems updated accordingly.

Ongoing Monitoring: Regular check-ins are key to making sure everything runs smoothly, verifying employee data on eligibility, contributions, investments, and autoescalation dates. This ongoing oversight ensures that the plan stays compliant and effective, adapting to any changes in employee status or preferences.

Higher Catch-up Contributions for Older Employees

Catch-up contributions in 401(k) plans have been around since 2001, established by the Economic Growth and Tax Relief Act of 2001 (EGTRRA). These contributions allow employees aged 50 and older to make added contributions to their 401(k) accounts beyond the standard deferral limits.

Background: Catch-up contributions are designed to help employees who started saving later in life boost their retirement savings as they approach retirement. For 2025, the catch-up contribution limit is $7,500, in addition to the standard maximum contribution of $23,500. This means employees 50 or older can contribute up to $31,000 for this year alone. However, despite the benefits, many employees unfortunately lack the income to take advantage of catch-up contributions. According to a 2024 analysis of Vanguard 401(k) plans, only 15% of participants use this feature.

Secure 2.0 Update: Secure 2.0 introduced changes to catch-up contributions for 401(k) and 403(b) plans. Starting this year, the maximum catch-up contribution amount has increased for employees aged 60-63. Additionally, high-income employees making more than $145,000 will have to make these contributions to a designated Roth account.

For 2025, the catch-up limit for employees aged 60-63 is $11,250, while it’s still $7,500 for the others over 50. Here's a quick comparison:

Implementation: Companies must verify whether their 401(k) plans offer catch-up contributions and if they include a Roth option. Plan documents should be updated, and HR and payroll systems must accurately track contributions based on compensation, age, and eligibility. It's crucial to inform employees, especially those aged 50 or older and those earning $145,000 annually, about these changes.

Takeaways: Offering catch-up contributions is voluntary, and companies don’t have to provide them. Similarly, Roth contributions aren’t mandatory either. However, if companies want to offer catch-up contributions starting in 2025, they must now have a Roth option for high earning employee catch-ups. This change underscores the importance of strategic planning and communication to ensure employees are aware of and can benefit from these opportunities.

Updated Long-Term, Part-Time Rules

Companies have traditionally required employees to work at least 1,000 hours in a plan year to be eligible to participate in their 401(k) plan. This provision excluded many employees because they worked less than 1,000 hours a year, making it impossible for these employees to save for retirement through their company’s plan regardless of how long they had worked for the company.

This has changed. Under the Secure Act of 2019, long-term part-time employees who worked at least 500 hours a year in three consecutive years and were at least age 21 were to be allowed to participate in their 401(k) plan effective January 1, 2024. They had to be allowed to contribute pre-tax elective deferrals, but not catch-up or Roth contributions. Additionally, employers did not have to make matching contributions to their account.

Secure 2.0 Update: Secure 2.0 shook things up by making it even easier for part-time employees to participate in their 401(k) plan. Starting in 2025, the service requirement went from three consecutive years to two. Now a part-time employee only needs to work 500 hours per year in 2023 and 2024 to meet eligibility requirements. This makes it easier than ever for part-time employees to be able to save for retirement.

Implementation Essentials: Implementation is where it gets tricky. Employers must adapt their payroll and HR systems to ensure they can accurately track hours worked for part-time employees, not only for the current year but for all years beginning in 2023 and going forward, to determine eligibility. Plan documents have to be revised, and these changes communicated to part-time employees so they understand they’re now eligible to participate in the plan and the benefits of saving for retirement.

Ongoing Monitoring: Regular monitoring is crucial to ensure compliance with the new rules. Employers must verify that all eligible long-term part-time employees have been identified and given an opportunity to participate. It’s also important to keep exact employment records and hours worked.

Takeaways: Including long-term part-time employees in a 401(k) plan is a big step toward expanding their access to retirement savings. Admittedly, the employer will put in added time and effort to ensure that hours are tracked correctly, but the benefits for employees are incalculable.

And We’re Off!

As we’ve seen, these new Secure 2.0 provisions are far-reaching, aimed at expanding retirement plan participation for employees and ensuring they have increased accessibility to company-sponsored 401(k) and 403(b) plans.

Implementing them requires a clear understanding of how they work and updating payroll and HR systems to handle the data and tracking required by them. Effective implementation requires clear and effective communication with employees so they know what’s going on and can appreciate their enhanced benefits.

Implementation is not without its costs, particularly with system upgrades. It also requires adding Roth capability if a plan wants to offer catch-up contributions going forward and doesn’t already have them in place.

Final Thoughts

As this discussion about Secure 2.0 changes illustrates, it’s crucial for employers and TPAs to stay ahead of the curve and be proactive. Data management is key. Expanded automatic enrollment, higher catch-up contributions for older workers, and the inclusion of part-time workers require it. This is where Stax.ai shines:

• Automation Integration: Stax.ai can streamline the autoenrollment process by seamlessly integrating with payroll and HR systems. This ensures that all eligible employees are enrolled as soon as they’re eligible, reducing administrative burdens and enhancing participant outcomes.

• Compliance Support: Stax.ai helps track and manage catch-up contributions by monitoring the ages and income of plan participants, ensuring high-earner contributions are made into Roth accounts. This precision in handling employee data allows employees to max out their retirement savings.

• Hourly Solutions: Stax.ai automates the tracking of part-time employee hours, ensuring that eligible employees are found so they can be given the opportunity to participate in the plan. This method reduces the risks of errors and ensures the provisions are followed.

Ready to reduce your compliance headaches? Stax.ai is your compliance partner. Our advanced data management solutions ensure accuracy, compliance, and efficiency, freeing up your time and energy to focus on what matters most to you – supporting retirement goals of employees everywhere.

Want to learn how we can help you stay ahead of Uncle Sam in 2025 and beyond? Let’s talk!