Knowing What Counts Podcast

Navigating the SECURE Act 2.0: Critical Changes for Your Retirement Future

• Tim Provost, CPA • Episode 6

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What is The SECURE Act 2.0?

Retirement planning is undergoing a seismic shift with the implementation of SECURE Act 2.0, and your financial future depends on understanding these critical changes. Melissa English, Audit Director with over 23 years of experience at MP CPAs, walks us through the five major changes hitting retirement plans in 2025 that will transform how Americans save for retirement.

The biggest revelation? Starting in January 2025, eligible employees must be automatically enrolled in retirement plans at 3-10% of their salary with annual increases—unless they actively opt out. This mandatory change aims to boost participation rates but comes with specific exceptions for certain businesses. We also explore super catch-up contributions, allowing those aged 60-63 to contribute an additional $3,750 beyond standard limits, and how long-term part-time employees will qualify for plans after just two years instead of three.

Whether you're a plan sponsor with fiduciary responsibilities or an individual preparing for retirement, this episode delivers actionable insights to optimize your financial strategy!

To learn more about MP CPAs visit:
https://thempgroupcpa.com/
MP CPAs
413-739-1800

Speaker 1:

Welcome to the Knowing what Counts podcast, the place where expert guidance meets smart financial decisions. Whether you're a high net worth individual or a thriving business, the experts at MPCPAs are here to help you protect and optimize your wealth. Let's get started, because success begins with Knowing what Counts. Because success begins with knowing what counts.

Speaker 2:

Let's explore key changes in retirement planning with the SECURE Act 2.0 and new cybersecurity measures to protect your savings. Welcome back everyone. I'm Sofia Yvette, co-host slash producer, back in the studio with Melissa English, audit director with MPCPAs. So, melissa, how's it going today? Very good, glad to be here, glad to have you on. So, melissa, go ahead and tell us a little bit about yourself. So.

Speaker 3:

I'm currently an audit director with the firm. I've been with the firm for about 23 years. I work on many clients over a variety of industries, mostly managing small to medium-sized businesses for like for-profits, non-profits, and I also specialize in employee benefit plans.

Speaker 2:

What are some recent changes for employee benefit plans?

Speaker 3:

So, yeah, there's been a lot of significant changes over the past few years, especially driven by legislation, workforce needs and economic factors, the first being the SECURE Act came out and became law in 2019 to help make it easier for plan sponsors to help manage retirement plans. And then, following the SECURE Act, came out SECURE Act 2.0, which became law in 2022. And this just enhanced opportunities and helped simplify plan administration plan administration. We also had some recent changes to some of our audit standards, so we do employee benefit plan audits and some of the auditing standards that have come out over the past few years especially SAS number 136, basically came out and changed a little bit of how we're reporting on our financial statements. So it helped us improve our audit quality, enhance transparency.

Speaker 3:

It basically clarified both plan sponsor and auditor responsibilities and the biggest change was it basically eliminated the limited scope audits, replacing them with ERISA section 103A3C audits, so basically getting rid of the scope limitation. So that's basically been the significant changes on the audit side. But then there's also been some cybersecurity updates. Recently, the DOL published Compliance Assistance Release Number 2024-01 on cybersecurity 2024-01 on cybersecurity. This was issued in September 2024 to clarify the 2021 cybersecurity guidance, which basically says all ERISA plans are subject to this guidance, including health and welfare plans, and I'm sure there's going to be more changes up and coming, especially with the new Trump administration, so plan sponsors should really stay tuned to see what is up and coming down the pipeline.

Speaker 2:

So, melissa, what changes will impact retirement plans for 2025, specifically defined contribution plans, 401k and 403b plans?

Speaker 3:

So With the SECURE Act 2, this impacted multiple years, ranging from 2023, and it's going to go into 2026. So there's going to be five major changes that I want to kind of touch on for 2025, becoming effective January 1st 2025. So the first change I would say is the automatic enrollment and escalation change is the automatic enrollment and escalation change. So under this change, eligible employees must be automatically enrolled into a plan at a default rate of between 3% and 10% of their salary, if the eligible participant has not made a deferral election or hasn't opted out of the plan. With this comes an escalation feature, meaning that annually, you need to increase those contributions 1%, reaching a maximum rate between 10 and 15%, as determined by the employer and what the plan document says. Now, because at this point, if you're automatically enrolled which means you didn't, as a participant, defer your own election at this point, you're also going to be invested in a default investment option. That is also in accordance to the plan document. So there's a few exceptions to this guidance. So if you were a plan adopted before December 29, 2022, you're exempt. If you're a business that has fewer than 10 employees, or you're a church or government plan, or you're a business that has not been in existence for three years, then you're also exempt from this guidance. The whole goal of this change is to try to increase plan participation rates.

Speaker 3:

The second change is super catch-up contributions. So if you are between the ages of 60 and 63 by December 31st of the calendar year, you can now make enhanced contributions. So the limit that you can contribute is the greater of $10,000 or 150% of the standard catch-up IRS limit, which currently, in 2025, is $7,500. So this would allow you to have an additional $3,750 of catch-up contributions as to oppose to the $7,500. The third change that is coming is regarding long-term part-time employees. So currently the guidance says you're eligible to participate in a plan if you've worked at least 500 hours for at least three consecutive years. The new change, basically, is reducing the three consecutive years to two consecutive years. However, this will not impact like union or defined benefit plans.

Speaker 3:

The fourth change is the long-term care expenses. So this allows you to basically pay for qualifying long-term care expenses through your distributions and this will not trigger the early 10% withdrawal penalty. But this only applies if you have a policy that provides high quality coverage, and this will actually be starting December 30th of 2025. And then the fifth and final change is really related to mandatory Roth catch-up contributions. So if you're a highly compensated employee who earns over $145,000 in a year, you now, if you are making catch-up contributions, you must have to do it on a Roth basis. So, basically, if your plan does not offer Roth contributions in the plan, you might want to consider amending the plan to include Roth contributions. Otherwise, your highly compensated employee over $145,000 will not be able to make catch-up contributions. This was postponed to be effective starting January 1st 2026. So these are the five changes that will impact our plans for 2025, going into 2026.

Speaker 2:

So Melissa, are these changes mandatory or optional?

Speaker 3:

So, yeah, they're a little bit of both. Some of these changes are mandatory and some of them are optional. So, with the five changes that are up and coming, three of them are mandatory the automatic enrollment and escalation that is a mandatory change. The long-term part-time employees mandatory. And also the Roth catch-up contributions are mandatory. The optional changes are the catch-up contribution increases and also distributions for long-term care expenses. Plans must adopt all the mandatory changes, but you have flexibility in the optional changes. Plans are going to want to look at those options to see if it's something they want to adopt into their plan document. These adoptions must be made prior to December 31st 2026, even though they're going to be coming to operation during 2025.

Speaker 2:

So, Melissa, what should plan sponsors do to be prepared for these changes?

Speaker 3:

Yeah. So as a plan sponsor, you have the fiduciary responsibility to act in the best interest of your employee. So you're going to want to make sure you're navigating through these changes, ensuring compliance with these mandates. Compliance with these mandates. You're going to want to have conversations with your third-party administrators, with your record keepers, to make sure the implementation is done correctly and that it's successful. You also should be reviewing any of these upcoming changes. Maybe you have a governing board or in a committee that you meet with on a regular basis to kind of go over these changes and how to adopt them, and you should be keeping good records on all those decision making in regards to these changes and, again, making sure that you're amending your plan prior to December 31st, 26th, so that you're in accordance with the law.

Speaker 3:

And how does cybersecurity fit into retirement plans as part of our testing? But nowadays everything is done online and remotely. So you go right online and you would choose your deferral. Or you want to take a loan out and you're going online and you're submitting the information for that loan or distribution. This requires personal, confidential data. So the way cybersecurity fits in is we plan sponsors and we as participants are relying on these service providers to keep our information safe. So with the cybersecurity guidance number 24-01, this gives you some clarity or tips for hiring a service provider. What are the best practices and what those tips are for using online security what those tips are for using online security.

Speaker 2:

What should plan sponsors think?

Speaker 3:

about regarding cybersecurity and what questions should they be asking? So everybody should start with reading the cybersecurity guidance and making sure they understand what it's saying. I would suggest that you're choosing providers with an eye towards monitoring cybersecurity, because I think that's very important. You're going to want to review, maybe, your current agreements or contracts with these service providers and making sure it discusses what their best practices are. So maybe asking what are their standards? How do they validate cybersecurity? What is their experience with breaches? What happened? How did they respond to it?

Speaker 3:

So kind of basically looking into, like, their track record. And I would also be asking, too, like do they have insurance to cover any losses? So what happens if there is a loss? And internally as an organization, everybody should look at their own best practices to see do they have something in place that identifies or assesses both internal and external risks? Do they have their own cybersecurity program that they should implement, or do they have insurance to cover any losses as well? And I would say, finally, making sure you're educating your participants regarding online security right, making sure they're changing passwords, using strong passwords, using multi-factor authentication, making sure they're routinely monitoring your account. Training is very important in making sure they're understanding, like what are phishing attempts and how can they report the incidents?

Speaker 2:

Love it, melissa. We'll catch you on the next episode. Have a fantastic rest of your day, thank you.

Speaker 1:

Thanks for listening to the Knowing what Counts podcast. Ready to optimize your wealth and protect your future, visit TheMPGroupCPAcom or call 413-739-1800 to connect with our team of experts. Remember, success is about knowing what counts.