While additional guidance is still needed on much of SECURE Act 2.0 (and 1.0), there are several provisions that are either in effect now- or going into effect over the next several years, which plan sponsors should be mindful of. Below is the latest in terms of key topics and current thinking on implementation.

It is important to note that the rules from SECURE Act 1.0 (Section 112) pertaining to long-term part-time employees remain in effect, regardless of the changes brought by SECURE Act 2.0 (Section 125), which reduced the time period of employment from three consecutive years to two.

With SECURE Act 1.0, if you have employees who have worked more than 500 hours for three consecutive years (2021, 2022, and 2023), they must be permitted to enter the 401(k) portion of your plan on January 1, 2024. You do not, however, need to offer them employer contributions unless they meet those eligibility rules.

Regarding excluded employees, there are two types: class exclusions and service exclusions. Class exclusions, such as “all Carlsbad office employees are excluded,” can continue as is. However, service exclusions, like “all temporary workers who work less than 750 hours,” may now require inclusion in the plan starting January 1, 2024.

Moving forward, under SECURE Act 2.0, the time period is reduced to two consecutive years. Employees who work more than 500 hours for two consecutive years (2023 and 2024) become eligible for the 401(k) plan on January 1, 2025. Class and service exclusion rules, as well as employer contribution rules, remain applicable.

On August 23, 2023, the IRS changed the implementation date of the new Roth catch-up contribution requirement from January 1, 2024, to January 1, 2026. Currently, the maximum individual contribution to a 401(k) plan is $22,500, referred to as the “standard contribution.” Participants over 50 can make an additional “catch-up contribution” of $7,500 (IRC 414(v)). When combining both contributions, the total maximum 401(k) contribution from pay is $30,000.

Starting January 1, 2026, if you make more than $145,000 in 2025 and wish to make a catch-up contribution in 2026, the catch-up contribution can only be made as a Roth contribution (your standard contribution, however, can still be made as either a pre-tax or Roth contribution).

When the time comes to prepare for Roth catch-up contributions, plans should closely follow communications from their recordkeeper and promptly contact their payroll provider to finalize the year-end process for flagging accounts. Additionally, plans should understand how contribution elections are managed in their current plan and anticipate changes for impacted accounts starting January 1, 2026. Once further guidance is available, educating plan participants with timely reminders before the new year is recommended, particularly for those requiring action.

Starting January 1, 2024, section 304 of the SECURE Act 2.0 will allow employer retirement plans to force out terminated participants with a balance of $7,000 or less—up from $5,000. This “force pay” provision essentially allows accounts to be transferred from a plan to a third-party IRA solution. Plans that implement this optional increase may be able to further reduce the number of participants in their plan with balances, which could be key to moving your plan out of audit status, based on a new update from the US Department of Labor (DOL).

The force-pay threshold increase, along with a new participant-counting methodology, could offer a path for many plans to step out of audit status in the year ahead. Earlier this year, the DOL announced significant changes for the 2023 Form 5500 and Form 5500-SF filings, which include how participants in a plan are counted—a crucial factor in determining whether a retirement plan would require an audit for the upcoming plan year.

For example, if your plan did not require an audit in 2022, it would need to have 120 or more participants with an account balance on January 1, 2023, to trigger an audit requirement for 2023. On the other hand, if your plan did require an audit in 2022, it would no longer need an audit for 2023 if it has fewer than 100 participants with an account balance on January 1, 2023.

Having fewer plan participants with balances and this new counting methodology could eliminate audit requirements for many plans this year or in the years ahead.