An Employee Benefit Plan Sponsor’s 2024 End-of-the-Year “To Do List”

As we near the end of 2024, we present our annual end-of-the-year “to do list” for employee benefit plan sponsors to consider as they reflect on the various legal updates from the past year, as well as those that become effective January 1, 2025.

Review SECURE 2.0 Changes.  The SECURE 2.0 Act of 2022 included many substantial changes for retirement plans, some of which became effective immediately in December 2022, and others with delayed effective dates.  And although amendments for mandatory plan changes under the SECURE Act and SECURE 2.0 are not required until December 31, 2026, plan sponsors should generally amend their plans by year-end for any discretionary changes that were implemented in 2024. 

Further, because plan operations must be consistent with the new laws, delaying the amendments may make it more challenging to accurately reflect how the plan was administered at the time.  That said, the IRS has issued only limited guidance on many of the changes, so in some cases, it may be best to wait to amend.  In the meantime, plan sponsors should maintain clear and detailed notes about any plan operational changes that were adopted.

Here is a list of some of the key SECURE 2.0 provisions that became effective this year, or that become effective beginning in 2025:

• Matching Contributions on Student Loan Repayments: Beginning January 1, 2024, employers may make matching contributions to a retirement plan for qualified student loan payments (“QSLPs”) – instead of elective deferrals – made by participants. For more information about matching contributions on QSLPs, click here.
  • TO DO: Consider whether your participant base would benefit from matching contributions on QSLPs and revise your operations accordingly. Amend your plan and communicate the change to participants.
• Increased Limit for Mandatory Cash-Outs: Prior to 2024, employers could automatically rollover a former employee’s account into an IRA if the account balance was between $1,000 and $5,000. SECURE 2.0 increased the limit to $7,000 for plan years beginning on or after January 1, 2024.
  • TO DO: Consider amending your plan and operations to implement this change, if desired.
• Penalty-Free Withdrawals: SECURE 2.0 offered a number of withdrawal options that are exempt from the 10% early distribution tax, including withdrawals for terminally ill individuals, domestic abuse victims, and individuals affected by federally declared disasters.
  • TO DO: Consider amending your plan and operations to implement any or all of these penalty-free withdrawals, if desired.
• 10-Year Rule Changes for Required Minimum Distributions: In April, the IRS (again) delayed enforcement of the annual distribution requirement for the 10-year rule. As a reminder, the SECURE Act of 2019 mandated beneficiaries who do not qualify as “eligible designated beneficiaries” to cash-out the entire balance of an inherited account within 10 years of the participant’s death. 

The SECURE Act did not specify how often the distributions must be made to comply with the 10-year rule, so most industry experts assumed a beneficiary could simply wait until the tenth year to cash out the entire account balance.  The IRS disagreed in its proposed rule, interpreting the SECURE Act to require annual distributions for each of the 10 years after the participant’s death.  Because of the confusion, the IRS has continued to delay enforcement of the rule, most recently until 2025.  Read more here.

• • TO DO: Prepare to make required minimum distributions annually under the 10-year rule, beginning in 2025.
• Long-Term, Part-Time Employees: The SECURE Act required “long-term, part-time” employees to be eligible to make elective deferral contributions to a 401(k) plan. Beginning January 1, 2025, SECURE 2.0 expands the definition of “long-term, part-time” employees to include employees who have provided at least 500 hours of service in a plan year for two consecutive years (instead of three) to be eligible to make elective deferral contributions. It also requires elective deferral eligibility for long-term, part-time employees in 403(b) plans beginning January 1, 2025. For more information on long-term, part-time employees, click here.
  • TO DO: Track the hours of part-time employees to determine whether any are considered “long-term” under both the SECURE Act’s definition and SECURE 2.0’s definition. Any long-term, part-time employees under the SECURE Act’s definition must have been eligible to participate in the plan’s elective deferral feature effective January 1, 2024.  Those meeting SECURE 2.0’s definition must be eligible beginning January 1, 2025.
• Increased Catch-Up Contribution Limits for Ages 60-63: Beginning January 1, 2025, the catch-up contribution limit for individuals who reach age 60, 61, 62, and 63 is increased from $7,500 to $11,250. Otherwise, for individuals who reach age 50 and up, the limit remains at $7,500.
  • TO DO: If your plan permits catch-up contributions, amend your plan and operations to incorporate this change. Consider sending additional communications to participants who will reach ages 60-63 in 2025, to help them understand the applicable limits.

Use or Allocate Plan Forfeitures.  The IRS recently issued proposed regulations providing that all forfeitures must be used “no later than 12 months following the close of the plan year in which the forfeitures were incurred.”  The proposed regulations also clarify that plans may use forfeitures to pay the plan’s reasonable administrative expenses, reduce future employer contributions, and increase participant benefits.  The plan document should specify how and when the plan will exhaust its forfeitures, particularly in light of the recent uptick in litigation around the use of plan forfeitures.

• TO DO: Review your plan terms regarding forfeitures to ensure forfeitures are used timely and consistently with the plan’s terms.

Review and Update your Cybersecurity Practices.  This year, the DOL reiterated its stance that all ERISA-covered plans must implement “appropriate best practices to help protect participants and their beneficiaries from cybercrime and emerging threats.”  The DOL published updates to its cybersecurity guidance applicable to all ERISA plans, highlighting a key takeaway: the DOL views cybersecurity as a top priority, and all ERISA plan fiduciaries – including those of health and welfare plans – should take steps to mitigate their plans’ cybersecurity risks.  For more information on the DOL’s update, click here.

• TO DO: Review and update your cybersecurity policies and implement safeguards specific to the data and assets in all ERISA-governed plans (including health and welfare benefit and retirement plans).

Consider Application of the Affordable Care Act’s Discrimination Rules.  In April, the Department of Health and Human Services published a final rule expanding the prohibition of discrimination in health care programs or activities under Section 1557 of the Affordable Care Act.  Specifically, the rule clarifies that discrimination “on the basis of sex” includes discrimination based on sexual orientation, gender identity, sex characteristics, pregnancy, and sex stereotypes.  The final rule does not require covered entities to cover particular health services (e.g., surgical treatment for gender dysphoria) but prohibits the exclusion of categories of services in a discriminatory manner.  For more information, review our legal update here.

• TO DO: Consider whether your group health plan is a “covered entity” required to comply with the final rule, and discuss with your group health plan administrator any changes (if any) that must be made to your group health plan to ensure compliance.

* * *

Calendar year 2024 was a busy one for employee benefit plans, and we continue to see the regulatory agencies and Congress prioritizing employee benefits as part of a grander scheme toward employee well-being and retirement readiness.  We look forward to seeing what’s in store in 2025!