SECURE 2.0 Act:

Key 401(k) and 403(b) Plan Changes Every Sponsor Must Prepare for by 2026

As retirement plan rules continue to change, it’s important for plan sponsors to stay informed. Here’s a summary of the most significant recent updates.

Mandatory Provisions

Roth catch up contributions

Through 2025, employees aged 50 and older who earned $145,000 (FICA wage threshold) or more in the prior year may continue making pre-tax catch-up contributions to their 401(k) accounts. However, starting in 2026, they will be required to make catch-up contributions to a Roth 401(k) account instead of a traditional pre-tax contribution.

If your plan does not currently offer a Roth 401(k) option, affected employees will be unable to make catch-up contributions at all. Plan sponsors should discuss with the recordkeepers to enable Roth 401(k) functionality, while also educating impacted participants about the tax implications of this change.

Long-term, part-time employee (LTPT) eligibility

Starting January 1, 2025, the SECURE 2.0 Act expanded eligibility for long-term part-time (LTPT) employees. Previously, LTPT employees needed to work at least 500 hours per year for three consecutive years to qualify for plan participation. Under the new rule, this requirement has been reduced to two consecutive years. If you are still applying the three-year rule to determine eligibility, reconsider and update your plan accordingly as the two-year rule is now mandatory.

Annual paper statements

Starting January 1, 2026, the SECURE 2.0 Act requires the plan sponsor to provide participants with at least one paper statement of benefits per year, unless the participant elects to receive it electronically. Quarterly statements, however, may still be delivered electronically. If your plan currently doesn’t have paper deliveries, check with the recordkeeper to see if they support paper deliveries.

Mandatory automatic enrollment

401(k) and 403(b) plans established on or after December 29, 2022, are required to auto enroll all the eligible employees at a minimum of 3% but not more than 10% of the plan compensation.

Auto escalation – In addition to the mandatory automatic enrollment, the Plan must also increase the participant’s contribution rate by 1% each year until the contribution rate reaches 15%.

If your plan doesn’t have an auto enrollment and/or escalation feature, check with your recordkeeper to enable those options.

For 401(k) and 403(b) plans established before December 29, 2022, the above requirement is not mandatory but recommended.

Optional Provisions

Long-term care distributions

Starting January 1, 2026, distributions taken to pay “long-term care insurance premiums” are considered penalty-free withdrawals. Though the 10% penalty doesn’t apply, regular income tax applies to the withdrawal. This provision also covers insurance premiums paid for the spouse or other family members, along with the participant.

The distribution amount is limited to the lesser of:

• Actual premium amount
• 10% of the participant’s vested account balance
• $2,500

Consider discussing with the recordkeeper and educating the plan participants if you, as a plan sponsor, would like to adopt this optional provision.

Involuntary Cash-Out Limit

Earlier, if the Plan had former employees with account balances less than $5,000, the plan sponsor could choose to initiate an automatic distribution of the entire account balance.  This provision eases the administrative burden. Under the SECURE 2.0 Act, the limit of $5,000 has been now increased to $7,000 to ease the burden further. If you, as a plan sponsor, would like to adopt this provision, consider discussing it with the recordkeeper.

We’re here to help.

As the SECURE 2.0 Act continues to reshape retirement plan administration, proactive preparation is essential. By working closely with your recordkeeper and staying ahead of implementation timelines, plan sponsors can minimize compliance risks and strengthen participant confidence. If you’re evaluating how these changes may impact your employee benefit plan audit requirements, our experienced employee benefit plan advisors can help you navigate the process with clarity and confidence.