401(k) Changes in 2025: A Guide for Employers

As we sail into 2025, the landscape for 401(k) plans is evolving in ways that open up new opportunities for both employers and employees. The Secure 2.0 Act of 2022 includes changes this year that affect businesses offering 401(k) options for employees, including requiring automatic enrollment for employees when they become eligible and expanding 401(k) eligibility for part-time workers.

The Secure 2.0 Act is a law designed to improve retirement savings options in the U.S. The Act aims to achieve three main objectives:

• Encourage individuals to save more for retirement.
• Enhance existing retirement regulations.
• Reduce the costs for employers when establishing retirement plans.

In 2025, many employers will be required to automatically enroll their workers in the company’s 401(k) plan, according to IRS.gov. Workers, of course, retain the flexibility to opt-out if they choose. According to RPG Consultants, not all employers are required to participate. “Certain plans and employers are exempt from this requirement. These exemptions include small businesses with 10 or fewer employees, new businesses less than three years old, church plans, and governmental plans.” Refer to the IRS Auto Enroll Fact Sheet for more details.

Why Automatic Enrollment Matters:

• Increased Participation Rates: Automatic enrollment has been shown to increase participation rates in retirement plans significantly. This means more employees are building their retirement nest eggs from day one.
• Reduced Administrative Burden: With automatic enrollment, employers can streamline the onboarding process, reducing the administrative hassle of tracking who has or hasn’t signed up.
• Enhanced Employee Satisfaction: By taking the initiative to enroll employees, businesses demonstrate commitment to their workforce’s long-term financial well-being, which can boost morale and retention.

Action Steps for Employers:

• Update Your Onboarding Process: Ensure that your onboarding materials clearly explain the automatic enrollment policy and provide easy-to-understand opt-out instructions.
• Communicate Effectively: Regularly communicate the benefits of the 401(k) plan to your employees. Highlight the power of compound interest and the employer match (if offered) to illustrate the value of participation.
• Leverage Technology: Utilize HR software to automate and manage the enrollment process, ensuring accuracy and efficiency.

2025 also brings expanded eligibility for part-time workers. According to IRS.gov, the new requirements state that employees who have worked either one year with at least 1,000 hours of service or two consecutive years with at least 500 hours of service are now eligible to participate in the 401(k) plan. This change significantly broadens the pool of employees who can benefit from retirement savings.

Why This Change is a Game-Changer:

• Inclusivity and Equality: By extending eligibility to more part-time workers, businesses can foster a more inclusive workplace where all employees have the opportunity to plan for their future.
• Increased Talent Attraction: Offering a 401(k) plan to part-time workers can make your company more attractive to a wider pool of talent, particularly those seeking flexible work arrangements.
• Boosted Loyalty and Retention: Providing retirement benefits to part-time workers can increase their loyalty and commitment to your business, reducing turnover and associated costs.

Action Steps for Employers:

• Review and Adjust Policies: Update your 401(k) plan documents and HR policies to reflect the new eligibility criteria. Ensure that all relevant employees are informed about their eligibility.
• Educate and Engage: Host informational sessions to educate part-time workers about the benefits of enrolling in the 401(k) plan. Use real-life examples to illustrate the long-term impact of their contributions.
• Monitor and Report: Keep track of part-time employees’ hours to ensure accurate eligibility tracking. Consider offering tools or software that help employees monitor their own eligibility status.

These 2025 401(k) changes represent a significant shift towards a more proactive approach to retirement savings. For employers, this is an exciting opportunity to enhance your company’s benefits package, attract and retain top talent, and demonstrate a genuine commitment to your employees’ financial well-being.