FLASHPOINT: 2025 Is Right Around the Corner:
What’s Lurking There For You?

By: Ilene H. Ferenczy, Esq.

You have probably become used to being assaulted by legal and regulatory changes that you need to address for your retirement plan. There have been a slew of laws and regulations in the past five years. Several issues are waiting for you in 2025, either because they are truly effective then, or because government guidance has been issued that makes an option available to you now. We thought it might be helpful to give a quick summary of what is lurking around the corner for 2025 that may need your attention. As you go through this list, remember that both your TPA and we are available to you to discuss things that interest or concern you.

Mandatory Automatic Enrollment: effective January 1, 2025, in relation to the first payroll of the year

Probably the most talked-about issue right now for 401(k) and 403(b) plans is the requirement that all plans (with certain exceptions) institute automatic enrollment and automatic increase as of 2025. These rules don’t apply to you if you are a small company (fewer than 11 employees), a new company (been around for less than 3 years), maintain a government or church plan, or sponsor a SIMPLE Plan. The last – and, of course, most complex – exception is for companies that sponsor 401(k) plans that were adopted before December 29, 2023. For more information, see our prior newsletter: SECURE 2.0 Grab Bag -Mandatory Automatic Enrollment

Reduced Service Requirement for Long-Term Part-Time Employee: effective for plan years beginning on or after January 1, 2025

If you employ people who work between 500 and 1000 hours in a plan year, you likely addressed long-term part-time (LTPT) employee concerns earlier this year. But the rules change slightly in 2025. Instead of an employee having to be permitted to enter after completing 3 consecutive years of service with more than 500 hours, the 2025 rule reduces this to 2 consecutive years. So, if LTPT is an issue for you, you will likely have an influx of new entrants who did not complete the 3-year requirement last year but do complete the 2-year threshold now. For more information, see our prior newsletter: Nerding Out on SECURE 2.0: Long-Term Part-Time, and 403(b) Plans

Increased Catch-up Limits for Individuals Age 60-63: effective for tax years beginning in 2025

Congress has provided increased 401(k) and 403(b) savings opportunities to those who are age 60 through 63 on their birthday in 2025. Catch-up contributions permit those individuals to contribute more than the normal $23,500 limit on salary deferrals (which is effective as of January 1, 2025; the 2024 limit was $23,000). If your plan so permits, these individuals can increase their catch-up contributions from the normal limit of $7,500 to 150% of that amount, or $11,250. So, a person between the ages of 60 and 63 could potentially defer a total of $34,750 to the plan.  For more information, see our prior newsletters: SECURE 2.0 2025 Catch-Up Contribution Increase and 2025 Changes in Catch-Up Contributions Available

Roth-ify Employer Contributions: already available

This was actually effective for 2024, but the IRS dawdled on providing the guidance plans needed to institute it until recently. If you have participants who love Roth, you can (but do not have to) permit them to elect to have employer contributions made to their accounts on a Roth basis. They get taxed on those contributions in the year in which they are allocated to their accounts, on a Form 1099-R (not on their W-2). For more information, see our prior newsletter: SECURE 2.0 Permits Employer Roth Contributions

Matching Qualified Student Loan Payments: already available

Another provision that is available for 2024, but for which guidance was slow in coming, is the ability to match student loan payments for your employees.  If you have a lot of people with big student loans that prevent them from making salary deferrals to your 401(k) or 403(b) plan, you can help them save for retirement anyway. (This is another provision that you may, but are not required to, adopt.) Under this provision, the participants get any matching contributions offered under the plan based on the amounts that they pay on their student loans during the year. There are administrative procedures you have to put in place, so if this interests you, be sure to contact your TPA.  For more information, see our prior newsletter: How Can I Save For Retirement When I’m Drowning in Student Loan Debt? Answer: QSLP Into Something More Comfortable

Increased Cash-Out Limit: effective for distributions on or after December 31, 2023

Historically, you could cash out accounts for terminated employees that held less than $5,000 (with checks payable to the participant for amounts below $1,000 or automatic rollovers to IRAs for amounts between $1,000 and $5,000). This enables you to get free of fiduciary responsibility and fees related to small accounts when people leave. Also, for pensions, you are not required to provide annuity options for benefits below that threshold. Beginning in 2025, the law permits you to increase this threshold to $7,000. It’s not mandatory, but why not get rid of terminated participants and trim down annual mailings?

New Distribution Options: already available

These new distribution options were also available for 2024. If you have employees who need money under circumstances not normally permitted for a 401(k) or 403(b) plan, this may be a helpful provision. In particular, limited distributions may be made to individuals with emergency personal expenses (different from those for a hardship distribution) or if they are victims of domestic abuse. These options are not mandatory, and if you are worried about retirement money being used for other purposes, it’s probably a good idea to leave your plan as is. For more information, see our prior newsletter: IRS Issues Guidance on Personal Expense and Domestic Abuse Victim Distributions

Pension Linked Emergency Savings Accounts (PLESAs): already available

Another 2024 option that you may not have been aware of, PLESAs are special accounts, separate from the normal 401(k) account, where employees can save for emergencies. It’s a nice idea for people strapped for cash…but it is a potential administrative nightmare. We mention it so that you can know that they exist. Think hard before you adopt one. For more information, see our prior newsletter: Pension-Linked Emergency Savings Account Guideposts Issued

If Estate Planning is Important to You … various provisions with various effective dates

The rules relating to mandatory distributions from retirement plans to people over age 70½ and beneficiaries of deceased participants have changed radically. If you have carefully planned the disposition of your plan funds after your death, it’s time to go see your estate planning attorney to see what changes need to be made.  For more information, see our prior newsletter: The Final RMD Regulations – The High Points

If you have questions about these new provisions, or if you want to see what you may have missed that became available in the past few years, give your TPA a call. And, if you need more assistance, give us a jingle (little holiday humor, there). After all, we are your ERISA solution!