The Secure Act 2.0, signed into law in December 2022, represents a significant update to retirement plan regulations that will take effect in the coming years, with major changes set to impact business owners in 2025. As part of a broader effort to increase retirement savings for Americans, the Secure Act 2.0 introduces several provisions aimed at improving access to retirement plans, encouraging participation, and enhancing tax benefits. For business owners, understanding the Secure Act 2.0 changes 2025 is essential to remain compliant with evolving retirement plan regulations. This article will explore the key changes brought about by this new legislation and their impact on employers, specifically focusing on Arizona businesses and Phoenix business fiduciary consulting.
The Secure Act 2.0: A Brief Overview
The Secure Act 2.0 is a continuation of the original Secure Act, which was passed in 2019. The aim of both pieces of legislation is to strengthen retirement savings across the U.S. by removing barriers for individuals and employers. In 2025, the most significant provisions of Secure Act 2.0 will come into play, directly affecting employers who sponsor retirement plans. These changes seek to make retirement planning more accessible and sustainable for American workers, while also providing business owners with new incentives to offer and improve employer-sponsored retirement plans.
One of the most critical objectives of Secure Act 2.0 is to increase retirement savings rates by expanding plan participation, particularly among lower-income workers and small businesses. The law also looks to improve plan flexibility, providing business owners with more tools to create and maintain retirement plans that align with their needs. Arizona employers, for example, will need to be aware of how these changes influence their obligations when offering retirement plans like 401(k)s or SIMPLE IRAs.
Changes to Employer-Sponsored Retirement Plans in 2025
As of 2025, one of the most important updates business owners will encounter is a requirement to automatically enroll eligible employees in retirement plans. This change is expected to have a significant effect on the way companies administer their retirement offerings. Employers will need to ensure that employees are automatically enrolled in their retirement plans, unless the employee opts out, with automatic contributions starting at a minimum of 3% of salary. The Secure Act 2.0 also introduces auto-escalation, which will increase the contribution rate by 1% each year until it reaches 10%.
For Arizona businesses, this requirement will be especially impactful for companies that have not yet established automatic enrollment in their plans. Employers will need to update their plan documents and processes to comply with this mandate, as failing to do so could result in penalties or other compliance issues. This change aligns with the broader goals of Secure Act 2.0 to improve retirement savings participation and ultimately help more workers save for retirement.
Another major shift in employer-sponsored retirement plans under the Secure Act 2.0 involves the increased use of Roth options. Business owners will be required to offer employees the ability to contribute to their 401(k) plans on a Roth basis, allowing for after-tax contributions. This provision is intended to give employees more flexibility in choosing how they want to save for retirement. For Arizona employers, understanding how Roth contributions work and ensuring that plan documents reflect these new rules will be crucial to maintaining plan compliance.
Expanded Eligibility for Retirement Plan Participation
One of the most significant Secure Act 2.0 changes in 2025 is the expansion of eligibility requirements for retirement plan participation. Under the new rules, employees who are 18 years of age or older and have completed at least two years of service with the company must be allowed to participate in the employer-sponsored retirement plan. Previously, employees had to work for the employer for at least three years before becoming eligible.
This change provides greater access to retirement savings options for employees, which can benefit both employers and workers. Business owners in Phoenix and Arizona, in general, will need to adjust their eligibility criteria and update their plan rules to align with these new provisions. By increasing access to retirement savings, these provisions will encourage more workers to save for their future, while also helping employers foster a more financially secure workforce.
Additionally, the Secure Act 2.0 introduces changes to part-time employee eligibility. Starting in 2025, part-time employees who work at least 500 hours for three consecutive years will now be able to participate in their employer’s 401(k) plan. Previously, part-time workers were required to work at least 1,000 hours annually to be eligible for plan participation. This change broadens the scope of who can benefit from employer-sponsored retirement plans, making them more inclusive for a larger portion of the workforce.
For business owners, especially those with seasonal or part-time employees, this update could mean a shift in how retirement plans are structured and administered. Arizona employers will want to consult with a Phoenix business fiduciary consulting firm to ensure that they remain in compliance with the new eligibility requirements.
Incentives for Small Business Retirement Plan Sponsorship
Small businesses are at the heart of the American economy, and Secure Act 2.0 provides new incentives aimed at encouraging small business owners to establish and maintain retirement plans for their employees. In 2025, small businesses will receive expanded tax credits for starting retirement plans. These tax credits are designed to help offset the costs of setting up and administering retirement plans, making it more affordable for small employers to provide this benefit.
For example, businesses with fewer than 50 employees can receive a tax credit to cover up to 100% of the plan startup costs, with a maximum credit of $5,000. In addition, employers that automatically enroll employees in their retirement plans will receive an additional $500 credit per year. These provisions will likely make it easier for Arizona small business owners to implement employer-sponsored retirement plans, providing an added incentive for them to do so.
In addition to these startup tax credits, Secure Act 2.0 also offers small businesses a streamlined approach to plan administration. The new law allows businesses with fewer than 100 employees to join a pooled plan, also known as a multiple employer plan (MEP), which allows them to share administrative costs and reduce the burden of compliance. This could be particularly beneficial for small businesses in Arizona, where pooling resources could lead to cost savings and improved efficiency.
By reducing barriers to entry for small businesses, the Secure Act 2.0 empowers more employers to offer retirement savings options to their employees. For business owners looking to take advantage of these incentives, working with a professional fiduciary consultant in Phoenix can help ensure compliance and optimize the benefits of these new provisions.
Staying Compliant with Secure Act 2.0 in Arizona
As business owners navigate the complexities of the Secure Act 2.0 changes 2025, staying compliant with the law is of paramount importance. The changes outlined in this legislation affect both the structure and operation of retirement plans, and non-compliance could lead to penalties and other negative consequences. Employers in Arizona will need to pay close attention to the new automatic enrollment requirements, expanded eligibility, and tax credits, ensuring that their retirement plans are updated accordingly.
For Phoenix businesses and those throughout Arizona, working with a fiduciary consultant is highly recommended to ensure that retirement plans are properly structured, compliant, and beneficial to both employees and employers. A fiduciary advisor can provide valuable guidance on plan design, employee communications, and ongoing compliance, helping business owners stay up to date with any changes to federal regulations.
Understanding the Secure Act 2.0 is essential for Arizona employers who wish to maintain compliant and competitive retirement plans in the years ahead. As 2025 approaches, it’s crucial for business owners to consult with retirement plan professionals to make any necessary adjustments to their plans. By doing so, they can ensure they are meeting the needs of their employees and fully utilizing the new tax incentives and benefits provided under the Secure Act 2.0.
Conclusion
The Secure Act 2.0 brings a wave of important changes that will impact business owners nationwide. For Arizona employers, understanding these changes and working with fiduciary consultants can help ensure a smooth transition to the new rules, fostering a more financially secure workforce and a more successful business. Whether you are managing a small business in Phoenix or a larger company across the state, staying on top of retirement plan compliance will be key to achieving long-term success in the ever-evolving landscape of employee benefits.
Need Pension Consulting & Pension Plans in Phoenix, AZ?
Fiduciary Advisors, Ltd. is a business-to-business associated pension administrator based in Phoenix, Arizona, since 1990. We specialize in designing and planning employee retirement programs, pensions, profit sharing, and are third-party administrators for 401K for small- to medium-size businesses. We conduct enrollment meetings, prepare detailed actuarial calculations, cash-balance plans, and financial consultation for all businesses. Give us a call today for more information!