SECURE 2.0: Essential Updates for Your Employee Benefit Plan

The SECURE 2.0 Act makes it easier to save for retirement, but its many changes don’t just impact individuals — there is a lot organizations need to know.

The intent of SECURE 2.0 is to increase retirement savings and simplify and clarify retirement plan rules. The act introduced more than 90 changes to the original law to enhance and protect retirement security. Plans must include SECURE 2.0 changes in their documents by December 31, 2026, although some changes take effect before this date.

Review some notable aspects of the new law that may impact your organization’s employee benefit plans.

New for 2026: Mandatory Roth catch-up for high earners

Beginning January 1, 2026, employees with prior year FICA wages exceeding $150,000 (indexed annually for inflation) must have their catch-up contributions (eligible to those aged 50 or older) sourced as Roth deferrals (after-tax).

If a qualified plan doesn’t currently offer a Roth deferral option, high earners can’t make catch-up contributions unless the plan is amended to allow for such contributions.

Complying with this new regulation requires plan sponsors to work with their payroll providers to make sure FICA wages are accurately tracked and eligible high earners automatically default to a Roth option once the traditional employee contribution limits are reached.

The IRS anticipates it may take some time for plan sponsors to fully and accurately implement these new provisions. Therefore, they’ve provided two correction options in instances where high earners inadvertently had pre-tax catch-up contributions:

Correction option 1: Recharacterization before the W‑2 is issued

If identified before issuance of the participant’s W-2 (typically January 31 of the following year), the plan sponsor can recharacterize the pre-tax catch-up as Roth (subject to income taxes) on the W-2 itself.

The plan’s recordkeeper would also transfer the catch-up contributions to the participant’s Roth account, adjusted for earnings or losses.

Correction option 2: In‑plan Roth conversion

Plan sponsors may also correct such errors through an in-plan Roth conversion. Under this method, the pre-tax catch-up contributions, adjusted for earnings or losses, are converted to Roth through an in-plan Roth conversion.

In such cases, the participant receives a Form 1099-R in the year the amount was converted, treating the conversion as taxable income when the individual files their income taxes.

Key differences between the two

• Under the W‑2 recharacterization method, taxable income reflects only the original catch‑up contribution (not subsequent earnings or losses).
• Under the in‑plan Roth conversion method, the taxable amount reported on Form 1099‑R may be higher due to accumulated earnings.

The recharacterization method is only available until the W‑2 for the year of the error is issued to the participant, so timely corrective action is important.

De minimis exception

Corrective action is not required if the pre-tax catch-up deferrals that were required to be Roth catch-up deferrals don't exceed $250.

Student loan payment matching

Starting in 2024, employers can provide a matching contribution based on an employee’s student loan repayments. The employer can rely on an employee certification of student loan payments made during the year.

Traditionally, matching contributions were only available to employees who contributed to their retirement plan. This option allows employees to save for retirement while also prioritizing student loan repayments.

Automatic enrollment and increases

Plans created after December 29, 2022 — with plan years beginning on or after January 1, 2025 — are required to automatically enroll employees at a rate of at least 3%, but no more than 10%. After the first year, the rate will increase by 1% annually up to at least 10%, but no more than 15%. Employees can opt out of one or both provisions. These changes are effective January 1, 2025. There are exemptions for businesses with 10 or fewer employees, those in operation for fewer than three years, and governmental, church, and SIMPLE 401(k) plans.

Long-term part-time (LTPT) employees

For plan years beginning in 2024, an LTPT employee becomes eligible to participate if they have worked three consecutive years with at least 500 hours in each year. In 2025, the waiting period is reduced to two consecutive years.

Enhanced catch-up contributions

Starting in 2025, employees between the ages of 60 and 63 can make additional catch-up contributions, up to 150% of the standard catch-up contribution limit. At age 64, the limit returns to the standard, $7,500 for 2025.

Penalty-free withdrawals

Participants can now access penalty-free withdrawals if terminally ill or affected by a qualified federally declared natural disaster after December 29, 2022. Starting in 2024, distributions will be available for domestic abuse and emergency expenses. Beginning December 30, 2025, employees can withdraw up to $2,500 annually for qualified long-term care insurance premiums.

Required minimum distributions (RMDs)

In 2023, the penalty for failing to take the minimum required distribution was decreased from 50% to 25% of the amount that should have been withdrawn. The RMD age was increased to 73 in 2023. The age will increase to 75 in 2033.

Starting in 2024, surviving spouses can elect to be treated as the decedent for RMD purposes. Using the decedent’s age may result in lower required payments. SECURE 2.0 also eliminates the pre-death RMD requirements for Roth accounts in employer-sponsored plans.

Other relevant changes include the option to designate employer contributions as Roth, the Saver’s Match (replaces Saver’s Credit), access to penalty free withdrawals under certain hardship circumstances, and expansion of the self-correction program.

While many of the SECURE 2.0 provisions went into effect earlier, plan sponsors have until December 31, 2026, to formally amend their plan documents to include these changes.

Access the Key Updates for Your 2026 Employee Benefit Plans white paper to stay informed with the latest employee benefit plan rules.

How CLA can help with employee benefit plans

Effective oversight and maintenance of employee benefit plans are essential. By implementing robust policies and diligently monitoring legislative changes, employers can help protect their employees’ assets and operate a more successful benefit plan.

Our knowledgeable team is available to provide guidance and insights on how evolving legislation may impact your benefit plan.

Contact us

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