With so many provisions contained in the SECURE 2.0 Act of 2022 (SECURE 2.0), it would be easy to understand why defined contribution (DC) retirement plan sponsors may be unclear on the status of those provisions.

In his article “SECURE 2.0 Update: Current Status of Significant Provisions” in the fourth-quarter issue of Benefits Quarterly, author Steven E. Grieb, CEBS, provides an update on the regulatory guidance issued for SECURE 2.0 as well as a look at plan sponsor adoption of some of the optional features. Grieb is the senior compliance counsel for Gallagher. He also recently presented the webcast “Roth Catch-Up Rule: Final Regulations and Future Challenges.”

In the nearly three years since the law passed, the Department of Labor (DOL) and Internal Revenue Service (IRS) have issued several pieces of guidance to help plan sponsors implement SECURE 2.0. In his article, Grieb wrote that the general theme of the compliance has been to “give plan sponsors flexibility to encourage compliance and facilitate the adoption of discretionary features.”

First, Grieb addressed two mandatory provisions.

Roth Catch-Up Rule

The basics: SECURE 2.0 requires all catch-up contributions made by participants to a DC plan to be made on a Roth basis, unless the participant’s prior year’s wages do not exceed $145,000 (adjusted annually for inflation). This provision goes into effect January 1, 2026.

Catch-up contributions are those allowed for participants age 50 and over. The idea is that allowing older participants to make higher contributions to their DC plans could help them catch up or expand on their retirement savings. Without catch-up contributions, participant DC plan contributions are capped at $23,500 in 2025. While traditional catch-up contributions are pretax, contributions made on a Roth basis are post-tax.

Update: In September, the IRS finalized regulations providing “substantial guidance” on the Roth catch-up rule, which Grieb explained tend to provide flexibility for plan administrators.

Examples of the flexibility in the guidance include the following.

• Once a participant who is subject to the rule reaches an applicable deferral limit, the plan can deem the participant to have elected that the contributions be made on a Roth basis.
• If a participant makes Roth contributions prior to an applicable limit being reached, those Roth contributions will be considered for purposes of deeming whether the Roth catch-up rule is met, which can allow the participant to make the catch-up contributions pretax.

Grieb cautioned that plan administrators cannot simplify plan operations by merely requiring all catch-up contributions to be made on a Roth basis. He added that plans that permit catch-up contributions are not required to offer Roth contributions. But if they do not offer Roth contributions, then only participants who earn less than $145,000 can make catch-up contributions.

Automatic Enrollment Mandate

The basics: All plans must offer an eligible automatic contribution arrangement with a default rate of at least 3% and make annual increases to that default rate. Eligible employees will be automatically enrolled in the retirement plan unless they opt out, and at least 3% of their wages must be contributed to the plan. Numerous types of plans are exempted from the rule in addition to plans that were established before the enactment of SECURE 2.0 on December 29, 2022.

Update: The IRS has issued proposed regulations providing guidance on how the rule applies in the event of plan mergers and corporate transactions as well as for pooled employer plans (PEPs).

Grieb also addressed optional provisions in SECURE 2.0, including the following.

Enhanced Catch-Up Contributions

The basics: Effective in 2025, SECURE 2.0 increased the catch-up contribution limit from $7,500 to $11,250 in the calendar years in which the participant turns 60, 61, 62 or 63. Participants do not get the higher catch-up limit in the year they turn 64.

Update: The IRS issued final regulations on this rule in September and made it clear that it is an optional feature.

This feature has proven to be one of the most popular options under SECURE 2.0, according to Grieb.  “Most plan sponsors see this rule as allowing additional deferrals for participants, with little downside. And recordkeepers have largely been quick to build administrative capabilities around this feature.”

Automatic Force-Out Rule

The basics: Prior regulations allowed retirement plans to automatically transfer the account balance of a former employee into an individual retirement account (IRA) if the balance was between $1,000 and $5,000. Effective in 2024, SECURE 2.0 increased the upper limit subject to the force-out rule from $5,000 to $7,000.

Update: Grieb wrote that this change has also been popular with plan sponsors and suggested that plan sponsors speak with their recordkeeper about increasing the limit if they have not done so already. “Having multiple small accounts associated with nonactive employees can complicate plan administration. Increasing the force-out level can help to clear the plan of more of those small balances and lessen administrative burdens,” he noted in the article.

Student Debt Match

The basics: Retirement plans can make matching contributions to retirement plans based upon participants’ payments to toward qualified student loans.

Update: Guidance was issued in 2024. Although the concept has generated a lot of discussion, few plan sponsors have implemented such programs, Grieb explained. However, one of the main barriers was recordkeepers’ ability to administer the program, and more service providers have started offering this feature.

Pension-Linked Emergency Savings Accounts

The basics: Plan sponsors can add pension-linked emergency savings accounts (PLESAs) creating a “sidecar” account that participant can choose to defer into as a rainy-day fund.Deferrals can go into the account on a Roth basis only and are limited to $2,500. Distributions can be taken from the fund at the direction of the participant.

Update: Both the IRS and DOL have provided guidance on the implementation of PLESAs, but Grieb wrote that so far plan sponsors have not shown significant interest in the feature.

Emergency Distributions

The basics: Plans can allow participants to take up to $1,000 (adjusted for inflation) penalty-free from their retirement plan each calendar year for emergency expenses, defined as any “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.”

Update: The IRS has given limited guidance on this provision. A majority of plan sponsors have taken a wait-and-see approach to implementation, but many are more open to this option because it is less complex than PLESAs, Grieb commented.

Employer Roth Contributions

The basics: SECURE 2.0 allows plan sponsors to give participants the ability to have employer contributions made to their retirement plans on a Roth basis.

Update: Adoption of this feature was delayed because few recordkeepers could administer the rule, Grieb noted. However, more recordkeepers have added this capability, and now close to 20% of DC plan sponsors are adding this feature.

Conclusion

“There’s no one-size-fits-all approach in determining which SECURE 2.0 alternatives should be adopted,” Grieb wrote. He advised that plan sponsors should determine what motivates their employees as well as how provisions may serve as a tool for attracting and retaining employees.

View the International Foundation’s SECURE Act 2.0 Toolkit for more information and resources.