Some provisions of the SECURE Act 2.0 have been in effect for over a year, impacting various aspects, including 403(b) retirement plans. If your non-profit organization provides a 403(b) plan to its employees, you likely made some adjustments in 2023, with potentially more substantial changes effective January 1, 2024. Additional provisions are set to be effective in 2025 and 2026. To help ensure compliance with relevant regulations and to incorporate beneficial enhancements, review and understand these significant provisions of the SECURE Act 2.0.
Effective January 1, 2024
1. Pension-linked emergency savings accounts (PLESAs). Non-profit employers may allow workers to contribute to a PLESA linked to their 403(b) plans. Contributions to these accounts are made on an after-tax basis, and the account balance attributable to employee contributions can’t exceed $2,500 (which will be indexed for inflation). Workers generally may make withdrawals from a PLESA much more easily than they can obtain a 403(b) plan hardship distribution or loan.
2. Student loan match. Employers can elect to make matching contributions to employees’ 403(b) accounts based on their student loan payments. This provision is intended to help build workers’ retirement savings even if their student loan payment obligations are preventing them from contributing.
Effective January 1, 2025
3. Automatic enrollment. For new plans adopted after 2024, non-profits must provide automatic enrollment. Employees can then choose to opt out if they don’t want to participate. One exception: Organizations with 10 or fewer employees or that have been in operation for less than three years aren’t required to meet this mandate.
4. Catch-up contributions for some older employees. Generally, taxpayers age 50 or older are allowed to make additional ‘catch-up’ contributions to their 403(b) plans. SECURE 2.0 will allow employees age 60 to 63 to make even larger catch-up contributions of $10,000 (indexed for inflation) or 150% of the regular catch-up limit, whichever is greater.
5. Part-time worker participation. Under the first SECURE Act, part-time workers are eligible to participate in their employers’ 403(b) plan if they have 500 hours of service each year for three consecutive years. Starting in 2025, the eligibility requirement will fall from three years to two years.
Effective January 1, 2026
6. Catch-up contributions for higher-paid employees. Changes to 403(b) catch-up contribution rules originally were scheduled to go into effect in 2024. But, in 2023, the IRS announced a two-year transition to help non-profits comply with the new rules. Beginning in 2026, employees who earned more than $145,000 in the prior year (indexed for inflation) will be allowed to make catch-up contributions only to a Roth 403(b) account.
Another Roth 403(b)-related provision went into effect in 2022: Employees can elect that their employer makes matching contributions to their Roth 403(b) — if the non-profit offers one. (Previously, matching contributions could be made only to an employee’s traditional account, even if the employee contributed to a Roth account).
What Stays The Same (For Now)
As always, traditional 403(b) plan contributions grow tax-deferred in participants’ accounts and withdrawals are taxed — generally when participants are retired and in a lower income tax bracket. Employee contributions are deducted from paychecks pre-tax.
The 403(b) contribution limit for 2024 is $23,000, and participants age 50 or older can make catch-up contributions of an additional $7,500. Also, participants who have been employed by your non-profit for more than 15 years may be eligible to contribute an extra $3,000 a year, if you’ve included this provision in your plan. Contact us if you have questions about 403(b) limits or any changes under the SECURE Act 2.0.