401k plans saw a number of changes with highlights listed below:
A focus on increased savings
Starting in 2025, Employers must start automatic contributions for everyone who qualifies to participate at a minimum level of 3% in 401ks with a 1% increase each year. Employees can opt out.
Also in 2025 all new 401k and 403b plans must auto enroll employees who don’t opt out. There is also some wording around plan transferability when leaving employment that will require sponsors to automatically offer portability services to employees with small balances to move accounts to new employers.
Roth 401k changes
Within those plans, employers can now offer retirement subaccounts that can act as emergency savings funds and operates like a Roth account (after-tax funds; tax-free withdrawals). The annual limit is $2,500 per year with up to a 100% match. The first 4 withdrawals any given year would be penalty and tax free.
For our clients who's 401k plans we manage: we are working to find out when these account types will be an option and will be reaching out to you to discuss this option and explain to staff if you decide to implement.
Employees will also have the option to receive their match in Roth accounts (and pay taxes on those matches today). It will probably take some time for plan sponsors and payroll systems to be ready to implement this change.
Student Loan Payment “Matches”
Starting in 2024, Employers can match Student Loan Payments into the Employee’s 401k, treating the student loan payment like a 401k contribution. So for younger employees with student debt who don’t have a lot left to start retirement savings, this can be a head start to saving even if they like the cash flow. Like most benefits this would need to be offered to all employees not just the Associate you want to hire.