Answers to Top SECURE Act Questions We’re Hearing Now

Need help talking with your clients about new and upcoming provisions to the SECURE Act 2.0, or the Setting Every Community Up for Retirement Enhancement Act? Keep reading for answers to frequently asked questions.

When do mandatory automatic deferrals start?

SECURE 2.0 requires 401(k) and 403(b) plans established on or after Dec. 29, 2022, to include an eligible automatic contribution arrangement, or EACA. This requirement, as updated by the IRS in December 2023, also affects employers who adopt another employer’s plan or a pooled employer plan, unless they meet certain requirements. Auto enrollment would begin with the 2025 plan year.

The mandatory EACA requires automatic deferrals to begin at 3% and increase each year until they amount to at least 10% — but not more than 15% — of compensation. The EACA also must allow newly eligible participants to withdraw their initial automatic deferral within the first 90 days of participation.

As with state-mandated retirement plans, this is one more step toward helping employees save for retirement.

When does the increase to the catch-up limit begin?

Beginning with the 2025 tax year, participants 60 to 63 years old can make additional catch-up contributions to 401(k), 403(b) and governmental 457(b) plans. The catch-up contribution will increase to the greater of $10,000 or 150% of the normal age-50 catch-up contribution limit for 2024.

This increase in the catch-up limit is not likely to be on the radar for most plan sponsors, who may focus on other provisions of SECURE 2.0. Plan sponsors who handle payroll in-house may need to consider updates to their payroll system to accommodate the increased catch-up contributions for this age group.

What’s the new balance amount for force-out distributions?

Plan sponsors typically elect to force out account balances for terminated participants with balances below $5,000. This allows employers to reduce the number of participants in the plan for Form 5500 purposes. A force-out distribution also helps employers avoid having to track current addresses of terminated participants to provide ongoing communication.

Effective Jan. 1, 2024, the SECURE Act 2.0 increased the force-out distribution amount from $5,000 to $7,000. The Standard is automatically increasing the force-out distribution for plan sponsors who have elected to use the maximum force-out distribution.

How can plan sponsors reduce top-heavy contributions?

If a plan allows employees to start contributing to it before completing one year of service and before they’re 21, then plan sponsors can reduce their top-heavy contribution liability for those employees. SECURE 2.0 lets employers choose not to make a top-heavy contribution for these participants. This optional provision removes the financial incentive to exclude employees from the 401(k) plan and increases retirement plan coverage to more workers.

What are the new provisions for controlled and affiliated service groups?

A new provision effective in 2024 relates to businesses located in community property states. It affects the determination of a controlled group or affiliated service group of employers.

For spouses who own separate businesses, this provision means they will no longer be required to combine their businesses for testing purposes just because they live in a community property state. Individual spouses may have their own plans for their respective businesses, with different plan provisions and rates of contribution.

SECURE 2.0 has also changed the attribution rules between parents and minor children. This may also change the controlled group status and affiliated service group status of certain entities.

The main takeaway from these changes is that businesses that were once required to be grouped for nondiscrimination testing — due to the controlled group or affiliated service group rules — may now be considered unrelated employers. For advisors, these changes mean greater flexibility when designing a retirement plan to meet these clients’ goals.

What is the new plan amendment deadline?

The IRS is still expected to issue guidance on many SECURE 2.0 provisions. Meanwhile, most plans have an extended deadline of Dec. 31, 2026, for amending the SECURE Acts, CARES Act, Miners Act and the Disaster Tax Relief Act of 2020. The extended deadline for collectively bargained and governmental plans is Dec. 31, 2028, and Dec. 31, 2029, respectively.