SECURE 2.0 Act
This month marks the 2-year anniversary since the passing of SECURE 2.0 and as we head into 2025, some provisions are scheduled to take effect. One major change is the increase in 401(k) contribution limits, now set to $23,500, up from $23,000. Additionally, technical guidance has been issued on cost-of-living adjustments for pension plans and other retirement-related items for the tax year 2025.
In the midst of these updates, there are rumblings of SECURE 3.0 - which may be introduced early next year as part of the tax package Republican lawmakers are planning to pass in the new Congress. This may increase retirement asset portability for workers who invest in employer-sponsored retirement plans and make it easier for the assets to automatically follow people around as they go from employer to employer or employer to IRA.
We spoke with Richard Clarke, Chief Insurance Officer, Colonial Surety Company, who is a leading direct and digital insurer, to discuss the ins and outs of the new SECURE 2.0 provisions coming into effect, as well as what a potential SECURE 3.0 can signify for plan sponsors.
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Q: What are the new SECURE 2.0 provisions going into effect in 2025?
A: It’s been two years since SECURE 2.0 was signed into law and introduced new provisions to enhance retirement savings for working individuals. As we enter 2025, we should be prepared for a variety of aspects of SECURE 2.0 to come into effect, with the most significant change being the increase in 401(k) contributions from $23,000 to $23,500. Also, individuals aged 60-63’s “catch up” contributions will see an increase of $11,250, which is up from $7,500 in 2024 or as 150% of “catch up” limit for individuals aged 50. The act’s implementation is ongoing, and some provisions have deadlines beyond 2029, so it is wise for plan sponsors and TPAs to consistently conduct due diligence and ensure they are aware of the incoming changes.
Q: Why do plan sponsors need to brace for impact with new provisions coming into effect in 2025?
A: At the present moment, we are encountering a lot of economic uncertainty, especially as the federal government prepares for a new presidential administration. Plan sponsors should be preparing for a high-level focus on debt reduction initiatives, but at the core of any change, the interest of caring for and listening to workers will remain a priority. However, the sheer weight of legislative functions may delay new reforms such as the rumored SECURE 3.0. While we are amid an incoming storm of change, plan sponsors need to remain nimble to traverse through potential fiduciary changes and responsibilities.
Related: SECURE 2.0 mandatory provisions for 2025: New tool prepares employers for compliance
One thing is for sure, the importance of remaining proactive is at an all-time high as risks of fiduciary breaches loom. If they have not done so already, it is advisable for plan sponsors to look into setting protection guardrails for themselves, plans like fiduciary liability insurance allows plan sponsors to fulfill their duties with greater confidence and financial security. Finally, there seems to be strong sentiment amongst SECURE 3.0 supporters for some sort of "Long Term Care" provision to be part of any SECURE 3.0 provisions.
Q: What is SECURE 3.0 and how can it improve retirement savings?
A: The sector is in a cloud of anticipation. We are about a month out from the new administration taking office and little is still known about SECURE 3.0 and what it actually may amount to. There are some good predictions on what it could entail, for example, continuing the 401(k) increased amounts as well as the added enhanced benefits for older workers, but we will not be certain until more information from the new administration trickles down. However, we can expect there will be a continued focus on legislative efforts to allow employees more flexibility as they plan for retirement as well as a greater emphasis on portability.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
