Business owners who sponsor qualified retirement plans are familiar with annual changes to the rules for their plans, such as 401(k) and 403(b) plans. In 2025, the changes continue the gradual phasing-in of provisions established in the SECURE Act of 2019 and the subsequent SECURE 2.0, adopted in 2022.

The phased implementation of these laws was designed to give employers, plan administrators, and financial institutions time to adapt to the new requirements. Unlike last year, when more than two dozen new rules took effect, changes in 2025 are limited to only a few areas. including automatic enrollment requirements, enhanced participation opportunities for part-time employees, and new rules governing catch-up contributions by employees aged 50 and over.

The IRS has not yet published final regulations to implement some of these changes. It issued proposed regulations in early January and has scheduled public hearings for early April, so some of the details might still change. Nevertheless, employers should reach out to their plan administrators now to ensure compliance when these rules are finalized. In addition, they should consider any needed changes to their administrative processes, payroll systems, and employee communication strategies.

Automatic Enrollment

Under SECURE 2.0, any 401(k) retirement plan that was established after December 29, 2022, must automatically enroll employees as soon as they become eligible rather than allowing them to “opt in.” This mandatory automatic enrollment requirement took effect on January 1, 2025.

Under this new mandate, each enrolled employee’s initial automatic contribution must be at least 3% of his or her eligible wages, up to a maximum of 10 percent. The contribution must automatically increase by 1% each year until it reaches at least 10% of eligible wages, up to a maximum of 15%. Employees may still choose to opt out of their company’s plan and may also adjust their contribution rates, provided they stay within the prescribed limits.

Plans that were established prior to 2023 are exempt from this mandate, but plan administrators may choose to establish automatic enrollment if they have not already done so. Companies with 10 or fewer employees, as well as those in business less than three years, are also exempt. Bear in mind that these requirements apply only to companies that choose to sponsor 401(k) plans. Nothing in the law requires employers who do not already offer a plan to establish one now, although some states do require employers to offer some type of retirement plan.

Part-Time Employee Eligibility

The original SECURE Act of 2019 allowed long-term, part-time employees to begin participating in their employers’ 401(k) plans. To qualify, the employees had to complete at least 500 hours of service per year for three consecutive years and be aged 21 or older by the end of the third year.

As of January 1, 2025, SECURE 2.0 has reduced the qualification period to two years of consecutive part-time employment. This change is intended to help boost part-time workers’ financial security by allowing them to start saving for retirement sooner.

Catch-Up Contributions

Most 401(k) plans allow workers aged 50 or older to make additional catch-up contributions on top of the annual limit that applies to all plan participants ($23,500 in 2025). The maximum additional catch-up contribution limit for 2025 is $7,500, for a total allowable contribution of $31,000.

SECURE 2.0 included several provisions affecting these catch-up contributions. Starting this year, employees aged 60 to 63 are allowed higher catch-up contribution limits—up to 150% of the regular catch-up limit—if their employers agree. This means that for 2025, employees in this age range could contribute an additional $11,250, for a total 2025 contribution of up to $34,750.

Note, however, that this feature is optional for employers—each plan sponsor must decide whether to implement it. Once an employee reaches age 64, the regular catch-up contribution limits go back into effect.

SECURE 2.0 also imposed new limitations on catch-up contributions by high-income earners, but these have been delayed until 2026 to allow more time for employers to make the necessary administrative adjustments. Starting next year, catch-up contributions by workers whose prior-year Social Security (or FICA) wages exceeded $145,000 will be treated as after-tax Roth contributions, which will not reduce current-year taxable income but can be withdrawn tax-free in the future.

Note that plan sponsors are not required to offer a Roth savings option. If the plan does not offer a Roth option, individuals subject to the high-income Roth catch-up requirement will not be permitted to make catch-up contributions at all. The $145,000 trigger amount will also be indexed for inflation in future years.

In Summary

Final regulations for implementing the required changes won’t be available until after the IRS public hearings in April. In the meantime, employers and plan administrators should begin the process by reviewing and updating plan materials as necessary, as well as coordinating with payroll providers and begin thinking about how they‘ll convey important information to employees.

The accounting and tax professionals at Dembo Jones are always monitoring legal, tax, and benefits compliance issues. We’re available to help you determine what changes in 2025 apply to your business.