403(b) Plan Changes Through 2026 Impact Nonprofit Organizations
Posted by Thomas Burns on February 14, 2024
Several provisions of the SECURE Act 2.0, a sequel to the 2019 SECURE Act, have been enacted since 2022, significantly influencing 403(b) retirement plans within nonprofit organizations. Should your not-for-profit administer a 403(b) plan, you've likely implemented minor adjustments in 2023, with potentially more substantial modifications on January 1, 2024. Additional provisions are slated for enactment in 2025 and 2026. To ensure compliance with pertinent regulations and judiciously incorporate enhancements, it's imperative to scrutinize these pivotal SECURE Act 2.0 provisions.
Today - Unchanged (For Now)
Traditional 403(b) contributions continue to accrue tax-deferred with withdrawals taxed upon retirement. Pre-tax deductions facilitate employee contributions.
The 2024 403(b) contribution limit stands at $23,000, with individuals aged 50 or older eligible for catch-up contributions of an additional $7,500. Employees with over 15 years of tenure may qualify for an extra $3,000 annual contribution if stipulated in the plan. For inquiries regarding 403(b) limits or SECURE Act 2.0 adjustments, reach out to us.
Effective January 1, 2024
Pension-linked emergency savings accounts (PLESAs): Nonprofit entities may authorize employees to contribute to a PLESA linked to their 403(b) plans. Contributions are post-tax, capped at $2,500 (adjusted for inflation), with withdrawal ease surpassing that of 403(b) hardship distributions or loans.
Student loan match: Employers can opt to match employees' 403(b) contributions based on their student loan repayments, fostering retirement savings even amidst ongoing student loan obligations.
Effective January 1, 2025
Automatic enrollment: Newly established plans post-2024 must institute automatic enrollment, allowing employees to opt out if desired. Exceptions apply to organizations with fewer than ten employees or operating for less than three years.
Catch-up contributions for older employees: SECURE 2.0 expands catch-up contribution opportunities for individuals aged 60 to 63, enabling larger contributions of $10,000 (indexed for inflation) or 150% of the regular catch-up limit.
Part-time worker participation: Eligibility for part-time workers to enroll in employers' 403(b) plans decreases from three consecutive years to two years of service starting in 2025.
Effective January 1, 2026
Catch-up contributions for higher-paid employees: Originally slated for 2024, changes to 403(b) catch-up contribution rules commence in 2026, limiting catch-up contributions for employees earning over $145,000 (indexed for inflation) to Roth 403(b) accounts.
A related Roth 403(b) provision, initiated in 2022, permits employees to direct matching contributions to their Roth 403(b) accounts if offered by the nonprofit, broadening previous limitations to traditional accounts.
As discussed here, the SECURE Act 2.0 has many changes that affect 403(b) retirement plans. It is important that your organization stays current on all regulatory rules and the enhancements available to your employees. Reach out to us for assistance.
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Tom joined Lumsden McCormick in 1999 with experience from a nationally based commercial business. In his role as principal, he has extensive experience in the planning and performance of auditing and accounting services for commercial businesses, nonprofit organizations, and governmental units. Tom specializes in employee benefit plans for a variety of organizations, and coordinates the Firm’s affiliation with the AICPA's Employee Benefit Plan Audit Quality Center. In addition, he has performed dozens of Service Organization Control (SOC) examinations.