As a plan sponsor, you know the importance of staying up-to-date with the latest changes in retirement plan regulations. You also know your employees are counting on you to support their retirement savings. SECURE 2.0 Act introduced several new reforms; for example, beginning in 2025, employees ages 60-63 will be allowed to increase their catch-up contributions. So, things will be changing soon! Here's what you need to know to help your workforce make the most of their pre-retirement years.
Revisiting Standard Catch-Up Contributions
Historically, the catch-up contribution provision has been key for employees over 50 as they accelerate their retirement savings. Through 2024, the catch-up contribution allowed employees to save an extra $7,500 over the standard limit. This has been crucial for those looking to make up for lost time or maximize their retirement nest egg.
The Dawn of "Super Catch-Up" Contributions
The SECURE Act 2.0 brought new opportunities for participants between the ages of 60 to 63, with the introduction of "Super Catch-Up" contributions. Here are the specifics:
Increased Contribution Limits
The Act allows an increase in catch-up contributions to $11,250 beginning in 2025
Eligibility and Employer Discretion
Eligible employees must have reached the standard deferral limit to avail themselves of this enhanced catch-up. However, this change is conditional upon the employer's decision to adopt it, granting plan sponsors a significant say in its implementation.
Strategic Implications for Plan Sponsors
Financial and Tax Planning
Offering the increased contributions can help your employees lower their taxable income during their peak earnings years, enhancing their readiness for retirement.
Here's a comparative look at the annual contribution limits for 2025:
Age Group | Standard Annual Deferral Limit | Catch-Up Contribution | Total Annual Contribution Limit |
50-59 OR 64 and older | $23,500 | $7,500 | $31,000 |
60-63 | $23,500 | $11,250 | $34,750 |
Regulatory Compliance and Communication
As plan sponsors, ensuring compliance with the new rules and communicating these changes to your employees is extremely important. Establishing clear, educational platforms to inform your workforce about their enhanced saving opportunities can make a significant difference in their retirement planning success.
Taking Action as Plan Sponsors
Working with retirement plan consultants, sponsors can navigate these legislative changes. Here are some steps to take:
Policy Review: Consult with your retirement plan services team to review and update your current policies in line with the SECURE 2.0 Act. The expertise these professionals bring to the table can prove invaluable in understanding the nuances and opportunities presented by the enhanced catch-up contributions.
Backed Stakeholder Engagement: Create a task force consisting of your company’s HR, finance, and legal teams, along with your consultant, to ensure a holistic approach in managing these updates.
Participant Communication: Craft a communication plan that clearly outlines the changes coming in 2025. Employ your consultant’s expertise to design educational programs and informative materials that effectively reach your employees.
Ongoing Supported Education: Provide ongoing educational sessions to field employee questions, provide guidance, and help participants tailor their retirement strategies.
Contact RPCSI
The enhanced catch-up contributions under the SECURE 2.0 Act offer a valuable opportunity for employees nearing retirement, and RPCSI can be a key partner in making this transition smooth. With our guidance, you can help your employees make the most of these updates, ensuring your retirement plan supports their long-term financial well-being.
Working alongside RPCSI gives you the support you need to stay on top of these changes and offer a retirement plan that truly benefits your employees. Together, you can turn these new regulations into a meaningful part of your employees’ retirement strategy.
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