Retirement plans are an essential element of employee benefit programs. According to the Employee Benefits Research Institute (EBRI), 52% of private industry workers participated in a workplace retirement plan as of 2022. However, 2025 retirement planning trends tell some interesting stories about plan participation and how working-age people utilize their plan assets in the wake of pandemics, economic downturns, and natural disasters concurrently happening at higher frequencies.
Here are the 2025 retirement planning trends that business owners and HR managers should keep in mind when assessing benefits packages.
Increased Catch-Up Contribution Limits
In the fall of 2024, the IRS authorized higher contribution amounts for employer-sponsored 401(k) plans and some public sector plans like 403(b)s to $23,500 for the 2025 tax year for all plan participants. Catch-up contributions also increased.
Typically, employees age 50 and older can make IRS-approved catch-up contributions as they near retirement age. This limit is $7,500 for the 2025 tax year, so employees age 50 and older may contribute up to $31,000 in 2025.
However, the SECURE 2.0 Act of 2022 added another tier of catch-up contributions for older workers that is effective in 2025: a higher catch-up contribution limit applies to employees aged 60-63. This higher threshold is $11,250, so workers aged 60-63 can contribute up to $34,750 to the 401(k) per year starting in 2025.
As people live longer and can subsequently work less strenuous jobs in their older years, fewer people are retiring at or near age 65 and want to take advantage of these higher catch-up contributions. Older employees may have less interest in other benefits, so they can direct more of their pay towards these higher catch-up contributions. They should be aware of the benefits available to them and the catch-up contribution ranges for their ages so they can make an informed choice.
The IRS also enacted other provisions of SECURE 2.0, such as expanding eligibility for the Saver's Credit. Making younger workers aware of this change will encourage them to participate in the workplace plan.
Emerging Flexibility with Emergency Savings
Many Millennials and Gen Xers had to draw on their retirement assets prematurely to get through COVID-induced hardships. Disaster distributions used to be rare, but they are now commonplace in the wake of the North Carolina hurricane, Southern California fires, and other devastating natural disasters that caused many people to lose their homes and livelihoods.
The IRS will allow Southern California residents in the presidentially declared disaster area to take out early distributions from IRAs, 401(k)s, and other retirement accounts without the 10% penalty. Even if Southern California residents did not lose their homes, many got sick from the smoke or couldn't work due to protracted highway closures and power outages. As a result of this reality, disaster planning is now being integrated into retirement planning both on the California coast and in the heartland.
Disaster can strike no matter where your firm is headquartered or where your employees live. Even if your region is fortunate not to experience grievous natural disasters, employees can face emergencies on a personal level, like a sick loved one or needing to flee a violent living situation. However, many people are reluctant to "break the glass" on their retirement savings unless the situation is incredibly dire. Their reason for distribution may also not comply with the plan documents, which only heightens their stress and reduces morale.
Offering emergency and disaster savings tools gives your employees peace of mind and more flexibility than traditional retirement planning.
Pooled Employer Plans (PEPs)
A pooled employer plan, or PEP, is a new vehicle created by SECURE 2.0.
PEPs function similarly to the health insurance exchange, except for small businesses to set up retirement plans. PEPs make employer-sponsored retirement plans more accessible to small businesses by enabling several small businesses to come together in one pool and share the administrative burden of running and administering a plan.
PEPs are an evolution of multiple-employer plans (MEPs) in that they don't require employers to belong to the same industry or professional organization, and the liability risk is vastly reduced: there's no "one bad apple" rule that punishes all the participants if just one of them violates the plan's rules.
This creates a more level playing field for small businesses that want to attract talent, but can't allocate resources to opening and managing a retirement plan. Mid-size employers that are eligible can also greatly reduce their benefits management costs by participating in a PEP.
Practical Implications for Businesses and Employees
Higher contribution limits for older workers will give them more impetus to stay with the company longer. While this is excellent for institutional knowledge and company loyalty, it can also make it more difficult to bring on younger successors and train them.
The integration of emergency and disaster planning with traditional retirement planning was inevitable. Employees who feel safe and secure with flexible options will always have higher morale than employees who feel boxed in with few or no options. You will have an easier time attracting diverse talent with flexible and customizable benefits that best fit a variety of needs, and almost everyone faces a personal or structural emergency at some point.
PEPs open up more options for small and mid-size employers to offer cost-effective retirement plans to their employees, become more competitive, and reduce the risks of working with multiple participants. While they are fairly new, with not that many approved providers online yet, about 100 registered with the Department of Labor, and more may come on board in 2025 if more small employers express interest.
Looking Ahead: Future Trends in Retirement Planning
As more provisions of SECURE 2.0 are enacted, the key to taking advantage of these provisions is making plan administrators, managers, and employees aware of these changes. Flexibility and preparedness are the drivers of 2025 retirement planning changes, along with capitalizing on sweeping changes of SECURE 2.0.
Stay ahead of the curve – Consult with Payroll Freedom to update your benefits and retirement plans according to the latest trends.
