Requirement for catch-up contributions for employees making more than $145,000 would have to be treated as Roth deferrals: The IRS had granted administrative relief, and this provision has been pushed to taxable years beginning after 12/31/25. The IRS has indicated in its final guidance that this will only apply to “wages” for FICA tax purposes. This means that, for example, a partner in a partnership whose earnings are reported on K-1 won’t have this Roth deferral requirement apply to them.
Automatic enrollment and deferral increase required for newly established 401(k) plans: Any plans established after 12/29/22 (with some exceptions for very small and recently established plans) will be required to have automatic provisions added to them prior to the start of the 2025 plan year if they don’t already have those provisions in place. We need to pay attention to these requirements for new plans if they weren’t established with automatic provisions in place.
Optional treatment of Employer Matching or Nonelective Contributions as Roth Contributions: The IRS has released some guidance to clarify how this optional provision will work. The biggest points of clarification we have received are as follows:
- Contributions treated as Roth will be taxed to the participant in the year allocated to the participant’s account but will not be treated as wages subject to tax withholding; instead those contributions will be reported on form 1099-R.
- If the participant isn’t fully vested in the match or nonelective contributions, then they can’t elect Roth treatment.
Recordkeepers are still working through the logistics and processes to implement this on their end, so the timing for implementation isn’t yet known.
Provisions Relating to Plan Amendments: The amendment period for both optional and mandatory provisions has been delayed to 12/31/26. If you are utilizing Rehmann’s prototype document, your plan specialist is documenting what optional provisions are selected in our software to prepare the amendments when they are available.
Elimination of requirement to send plan disclosures to unenrolled participants: Recordkeepers have been updating their participant disclosure capabilities so now they will provide only the following required disclosures to unenrolled participants:
- Initial eligibility and summary plan description
- Annual reminder notice informing them of their eligibility to participate in the plan
Higher Catch-up Limit to Appy for Participants Ages 6063: Recordkeepers and payroll providers should update their capabilities to implement this optional provision by 1/1/25. Participants that meet the requirements of this provision will be eligible for higher catch-up contributions of the greater of $10,000 (indexed) or 150% of the regular catch-up contribution limit.
Optional Withdrawals/Distributions that are Exceptions to the Additional Tax on Early Distributions: Recordkeepers are updating their systems to roll out the following optional provisions for implementation in 2024:
- Withdrawals of up to $22,000 for participants living in an area of a Federal Emergency Management Agency-declared disaster to cover losses due to that disaster.
- Withdrawals up to the lesser of $10,000 (indexed) or 50% of the vested account balance for domestic abuse victims.
- Withdrawals up to the lesser of $1,000 or the participants vested account balance in excess of $1,000 to cover emergency expenses with limits on how often a distribution can be taken for the same emergency.
Plan sponsors will need to determine if this wish to implement any of these provisions.
Self-certification of Hardship and Unforeseeable Emergency Distributions: Recordkeepers are working to roll out this optional provision so it can be offered if the plan sponsor desires to do so.
Student Debt: Recordkeepers are programing to allow plan sponsors who desire to offer this provision to be able to make it available. This provision allows for the provision of matching contributions to employees defined contribution plans, earned from the combination of deferrals and student loan repayments. Plan sponsors will need to check with their recordkeeper as to the ability to implement this provision.
Long-Term, Part-Time Eligibility: Secure 2.0 moved Secure 1.0’s three-year requirement down to a two-year requirement, effective for plan years beginning after 1/1/25. We are still waiting for IRS guidance on various issues around the implementation of this mandatory provision.
Mandatory Cash-out Limit: This optional provision raises the limit to $7,000, starting in 2024. If a plan sponsor is trying to clear terminated participants with small balances out of the plan, then it will make sense to implement this provision.
In-Plan Emergency Savings Accounts: Many recordkeepers are struggling to implement this optional provision and are choosing instead to offer an out-of-plan option due to the complexities and limitations of this provision. The administrative challenges may force plan sponsors to stay away from this provision.
Securities offered through Rehmann Financial Network, LLC, member FINRA/SIPC. Investment advisory services offered through Rehmann Wealth, a Registered Investment Advisor. Insurance services offered through Rehmann Insurance Group. HLB is not affiliated with Rehmann Financial Network, LLC, or Rehmann Wealth.