Significant updates are coming to 401(k) plans affecting employees across various industries. These changes, part of the SECURE 2.0 Act, are designed to enhance retirement savings opportunities and make retirement planning more accessible for all. Passed in late 2022, the SECURE 2.0 Act builds on the 2019 SECURE Act and includes over 90 provisions, some of which have already taken effect. The 401(k) updates for 2025 are particularly notable, offering expanded enrollment options, increased contribution limits, and greater flexibility for part-time workers.
Whether you’re just starting to save for retirement or already have a plan in place, it’s important to stay informed. Here’s a breakdown of the most significant changes to 401(k) plans coming in 2025:
Automatic Enrollment For New 401(k) Plans
Starting in 2025, all newly established 401(k) plans will automatically enroll eligible employees unless they opt-out. This provision aims to simplify the enrollment process and encourage more workers to begin saving for retirement as soon as they are eligible.
Employers with fewer than 10 employees or businesses under three years old are not required to automatically enroll. Government and church plans are also exempt from this rule.
Employers can set an initial contribution rate between 3% and 10% of an employee’s salary, with many opting for a rate around 6%. Each year, the contribution rate will automatically increase by 1% until it reaches the employer's predetermined cap, which could be as high as 15%. This means that employees will have the chance to gradually increase their retirement contributions without needing to take any action.
Faster 401(k) Eligibility For Part-Time Employees
Currently, part-time employees need to work 500 hours over three consecutive years or 1,000 hours in one year to qualify for their employer’s 401(k) plan. However, beginning in 2025, that eligibility window will be shortened to two years instead of three.
This adjustment is excellent news for part-time workers, especially those who juggle multiple jobs. Keep in mind if you contribute to multiple 401(k) plans with different employers, your total contributions across all plans must not exceed the annual limit, which is set at $23,000 for 2024.
Higher Catch-Up Contributions
The SECURE 2.0 Act acknowledges the financial concerns of older workers, many of whom worry they haven't saved enough for retirement. Starting in 2025, employees aged 60 to 63 will have the opportunity to make larger catch-up contributions than those in their 50s. The new limit will be set at either $10,000 or 50% more than the standard catch-up contribution limit, whichever is greater.
For example, if the catch-up contribution limit for 2025 remains at $7,500, workers between the ages of 60 and 63 can contribute up to $11,250. These limits will be adjusted annually to account for inflation, ensuring that employees can continue to maximize their retirement savings as costs rise.
How GMS Can Help
401(k) plan requirements are constantly changing, and with the new SECURE 2.0 provisions, businesses must stay on top of compliance while offering competitive benefits. At Group Management Services (GMS), we understand the importance of providing attractive retirement plans for your employees. Our team of retirement experts is here to help you navigate these changes, ensuring that your 401(k) offerings are compliant, competitive, and designed to meet the needs of your workforce.
Whether you’re looking to enhance your current retirement plans or want to explore new options, GMS can provide the guidance and support you need. Contact us today, and let us help you build a plan that works for both your business and your employees’ future.