What 2025 Retirement Rule Changes Mean for Small Business Owners

As the landscape of retirement savings evolves, 2025 brings significant changes that small business owners and entrepreneurs should be aware of. The SECURE 2.0 Act introduces new provisions affecting retirement plans, aiming to enhance savings opportunities and streamline plan participation. Understanding these updates is crucial for business owners to effectively manage their retirement offerings and ensure compliance with the latest regulations.​

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Enhanced Catch-Up Contributions for Older Employees

Starting January 1, 2025, individuals aged 60 through 63 will be eligible to make higher catch-up contributions to their retirement plans. For 401(k), 403(b), and governmental 457(b) plans, the catch-up limit increases to the greater of $10,000 or 150% of the regular catch-up limit for those aged 50 and above. This means that if the standard catch-up contribution is $7,500, eligible individuals could contribute up to $11,250. Similarly, for SIMPLE IRA plans, the catch-up limit rises to the greater of $5,000 or 150% of the regular catch-up limit. These adjustments are designed to help those nearing retirement age to bolster their savings during the critical final years before retirement.

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Mandatory Automatic Enrollment for New Retirement Plans

To increase participation in retirement savings, the SECURE 2.0 Act mandates that, beginning in 2025, most new 401(k) and 403(b) plans must include automatic enrollment features. Employees will be automatically enrolled at a default contribution rate of at least 3%, which will escalate annually by 1% until reaching at least 10%, but not exceeding 15%. Employees retain the option to opt-out or select a different contribution rate. This provision applies to plans established after December 29, 2022, with exemptions for businesses with 10 or fewer employees, those less than three years old, church plans, and governmental plans.

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Increased Access for Part-Time Workers

The new regulations also aim to expand retirement plan access for part-time employees. Starting in 2025, the definition of “long-term part-time employees” changes to include those who have completed at least 500 hours of service in two consecutive years, down from the previous requirement of three consecutive years. This adjustment allows more part-time workers to become eligible for participation in their employer's retirement plan, promoting broader inclusion in retirement savings programs.

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Strategies for Small Business Owners to Adapt

To navigate these changes effectively, small business owners should consider the following steps:

• Review and Update Retirement Plan Documents: Ensure that plan documents reflect the new provisions, including automatic enrollment features and updated catch-up contribution limits.​
• Communicate Changes to Employees: Inform employees about the upcoming changes, particularly those nearing retirement age who may benefit from increased catch-up contributions.​
• Assess Payroll Systems: Verify that payroll systems can accommodate automatic enrollment and contribution escalation features to ensure seamless implementation.​
• Consult with Retirement Plan Advisors: Seek guidance from financial advisors or retirement plan consultants to understand the implications of these changes and to develop strategies tailored to your business's needs.​

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Conclusion

The retirement savings landscape is set to undergo significant transformations in 2025, with provisions that aim to enhance participation and increase savings, especially for those approaching retirement. Small business owners must proactively adapt to these changes to ensure compliance and to provide valuable retirement benefits to their employees. By staying informed and implementing necessary adjustments, businesses can navigate the evolving retirement plan environment effectively.

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Sources

Kiplinger

IRS

AARP

Employee Fiduciary

Milliman

Sidley

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