Navigating SECURE 2.0 Act Retirement Plan Rule Changes - Paper Trails

Retirement plan rules change every year, and 2025 is no exception. SECURE 2.0 Act has resulted in a lot of updates to common retirement plans that have taken effect for 2025. From 401(k) plans to SIMPLE IRAs, there are many new requirements that small business owners need to stay informed of to remain compliant.

At Paper Trails, we understand that keeping up with HR changes such as retirement regulations can feel overwhelming. That’s why we’re here to break down some retirement plan rule changes that SECURE 2.0 Act has resulted in, especially in regards to 401(k)s and SIMPLE IRA plans. This article will walk you through the biggest retirement plan changes, including 401(k) automatic enrollment, increased contribution limits, and expanded eligibility rules for part-time employees. Let’s dive in.

Retirement plan rule changes

The SECURE 2.0 Act continues to roll out new provisions to help employees save more for the future. The major changes impact both 401(k) plans and SIMPLE IRAs, making it important for business owners to understand how these updates apply to their workforce.

Changes to the rules of 401(k) plans

Employers offering 401(k) plans will see new rules that affect automatic enrollment, catch-up contributions, and part-time employee eligibility. Here’s what you need to know:

1. Automatic enrollment becomes mandatory

Beginning in 2025, all new 401(k) and 403(b) plans must include automatic enrollment for employees. This means that when a new employee becomes eligible for the plan, they will be automatically enrolled at a minimum contribution rate of 3%, unless they choose to opt out.

• Each year, the contribution rate will increase by 1% until it reaches at least 10% (but no more than 15%).
• This rule only applies to new plans established after December 29, 2022—existing plans are not required to add automatic enrollment.
• Employees can still opt out or adjust their contribution rate at any time.

This change is designed to boost retirement savings participation, but it also means business owners need to ensure payroll and HR systems are updated to accommodate automatic enrollment requirements.

2. New 401(k) deferral limits for those 60-63

In prior years, the IRS catch-up limits for retirement plans started for those 50 and older. A provision in SECURE 2.0 Act introduces two tiers and allows for additional savings for those nearing retirement and aged 60-63.

• The 2025 contribution limit for 401(k) plans is $23,500, an increase of $500 from 2024.
• For those 50 to 59 or 64+, an additional amount of $7,500 (total of $31,000) can be contributed to their plan in the tax year 2025.
• Employees aged 60, 61, 62, or 63 can contribute an additional amount of up to $11,250 (total of $34,750) in 2025.
• This new limit will be adjusted for inflation annually.
• Higher-income earners making over $145,000 per year must make their catch-up contributions as Roth (after-tax) contributions starting in 2026.

This change allows older employees to supercharge their retirement savings in the years leading up to retirement.

3. Expanded coverage for certain employees

Under SECURE 2.0, long-term part-time (LTPT) employees will be eligible to participate in 401(k) and 403(b) plans sooner. This includes:

• Employees who have worked at least 500 hours per year for two consecutive years (down from three years under the previous rule) must be allowed to enroll in the plan.
• This rule applies to ERISA-covered 403(b) plans as well, starting in 2025.

Employers should review their part-time employee records and ensure their retirement plans are updated to include LTPT employees where required.

Changes to the rules of SIMPLE IRA plans

Small businesses that offer SIMPLE IRAs will also see updates in 2025, including higher contribution limits and expanded employer contribution options.

1. Increased SIMPLE IRA contribution limits

SECURE 2.0 introduces a “Jumbo” SIMPLE IRA for small businesses, allowing higher employee deferrals.

• For businesses with 25 or fewer employees, the annual deferral limit automatically increases to $17,600 as opposed to the $16,500.
• Employers with 26-100 employees can choose to offer the increased limits ($17,600), but they must:
  
  • Provide a 4% matching contribution (up from 3%), OR
  • Offer a 3% non-elective contribution (up from 2%).

Employers must notify employees of these changes in the Summary Description, which is due at least 60 days before the new plan year.

2. Higher SIMPLE IRA deferral limits

Similar to 401(k) plans, catch-up contributions for employees aged 60-63 will be higher starting in 2025.

• The 2025 contribution limit for SIMPLE IRA plans is $16,500, an increase of $500 from 2024.
• For those 50 to 59 or 64+, an additional amount of $3,500 (total of $20,000) can be contributed to their plan in the tax year 2025.
• Employees aged 60, 61, 62, or 63 can contribute an additional amount of up to $5,250 (total of $21,750) in 2025.

For small businesses, these changes allow older employees to save more while giving employers more flexibility in structuring their retirement benefits.

3. Roth employer contributions

SECURE 2.0 Act gives participants the option to have employer contributions be on a Roth basis instead of pre-tax. Matching contributions designated as Roth contributions must be 100% vested when made. Previously, plan participants could only designate elective deferrals as Roth contributions.

The IRS provides guidance on implementation, clarifying that:

• Employers are not required to offer Roth employer contributions, but they may choose to do so.
• Employees must irrevocably elect Roth treatment for matching and non-elective contributions before allocation.
• Employees must have the opportunity to elect or change Roth designation at least once per plan year.
• Roth employer contributions are included in taxable income when made and must be held in a separate designated Roth account.
• Designated Roth accounts can receive rollovers and in-plan Roth conversions.

While the IRS notice does not specifically address partial elections or default Roth treatment for qualifying employees, existing guidance suggests employers have flexibility in structuring their plans.

What these changes mean for your business

These 2025 retirement plan changes bring new opportunities and compliance requirements for small businesses. Automatic enrollment, expanded eligibility, and higher contribution limits can help employees build better retirement savings—but they also require employers to update their payroll and HR systems to stay compliant.

If you’re feeling overwhelmed by these changes, Paper Trails is here to help. We specialize in payroll, HR, and compliance solutions for small businesses, ensuring that you stay ahead of new regulations without the stress. Contact us today to make sure your business understands the retirement plan updates in 2025.