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Managing Partner – Family Office Services

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Karie M. OConnor,
CIMA®, CPFA®, AIFA®, QKA®

Director – Institutional Advisory Services

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Jeffrey P. DeHaan, CFP®

Managing Partner – Private Wealth Management

2025 Retirement Plan Changes: What Employers Need to Know

Karie M. OConnor Kevin G. Carani November 09, 2024

The Internal Revenue Service recently announced the annual retirement plan contribution limits for 2025 offering employees an opportunity to save a bit more for retirement, particularly if they fall in the age group 60-63. With the national deficit growing and tax policy a key agenda item in the coming year, helping employees understand the contribution limits and how they can take advantage of the higher limits is critical as they continue saving for retirement. Remember, these limits can vary annually, and an increase is never guaranteed.

Increased 401(k) Contribution Limits

In 2025, employees will be able to contribute $23,500 to their 401(k) plans, an increase of $500 over the 2024 contribution limit. This applies not only to 401(k) plans but also to other types of retirement savings plans such as 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan.

For employers, this presents an opportunity to reinforce the importance of saving for retirement, especially in a time of rising costs and longer life expectancies.

Catch-Up Contributions

Employees reaching age 50 by the end of 2025 can make a catch-up contribution of $7,500, consistent with 2024 limits. The SECURE 2.0 Act allows for workers aged 60 to 63 to make enhanced catch-up contributions up to $11,250 to accelerate their savings for workers as retirement nears. According to Vanguard’s Study “How America Saves” Report, about 15% of workers aged 50+ currently utilize the catch-up option, and even fewer contribute the maximum allowable amount.

Boosting Employees’ Retirement Readiness: How Increased Contribution Limits and Advisory Support Make a Difference

These increased contribution limits should be seen as part of a larger effort to promote retirement readiness. Advisors and employers can work together to encourage early savings habits, helping younger employees to start saving early to take advantage of compound growth. Encouraging employees to start early and contribute consistently will have a significant impact over time.

In addition to retirement plan contributions, aligning this effort with broader financial Wellness programs—including budgeting, debt management, and health savings— can help employees feel more confident and secure in their overall financial future. As a client of Clearwater Capital Partners, you can refer employees back to their Clearwater Capital Financial Wellness hub for information to support their long-term financial goals.

Leveraging Automatic Enrollment and Escalation

Automatic enrollment and automatic escalation are powerful tools for maximizing retirement readiness, especially as contribution limits increase. Most plan designs feature automatic enrollment, enrolling employees at a default contribution rate of 3-6% unless they opt out. Plans with this feature often see participation rates of 90% or higher, significantly above plans without automatic enrollment. Automatic escalation, which gradually increases contribution rates overtime (usually by 1% annually), is another valuable feature that can help employees build savings with minimum effort.

According to the Vanguard report, 58% of mid-sized retirement plans (those with assets between $5 million and $50 million) have adopted automatic enrollment, and about half also include automatic escalation. Together these features can help employees maximize savings in a steady, manageable way.

Employer Contribution Considerations with Automatic Features

Employers should align automatic enrollment and escalation rates with company matching contributions, ensuring employees take full advantage of the employer match while balancing the impact on company budgets. It’s also helpful to regularly review the default contribution rates, confirming they encourage sufficient savings while meeting participation goals. Employers can work with their plan advisors to provide tools and guidance to help employees review and adjust their contributions.

Administrative Considerations
  • Compliance: Employers need to ensure that automatic enrollment and escalation comply with federal regulations, including clear communication about opt-out options and ensuring employees understand how these features work.
  • Data Management: Automatic enrollment requires tracking employee opt-outs, contribution levels, and escalation schedules. Employers must work with plan providers to ensure accurate record-keeping and compliance.
  • Ongoing Monitoring: Regularly reviewing participation rates, the effectiveness of automatic escalation, and employees’ retirement readiness is key to ensuring that these features are delivering the intended benefits.
Conclusion: A More Secure Financial Future for All Employees

The contribution limit changes for 2025 offer another opportunity for employers to help employees save and build a more secure financial future. By integrating automatic enrollment and automatic escalation into retirement plans, leadership teams can boost participation rates and support employees in saving at a more effective pace. Framing these changes within broader financial wellness strategies helps foster a stronger culture of retirement readiness, ensuring employees are well-prepared for the years ahead.


Source: Maximum Benefit and Contribution Limits Table 2025 | PLANSPONSOR

Cheers to 10 Incredible Years

Clearwater Capital Partners is celebrating Kevin’s decade-long journey with our firm. From his unwavering dedication to his innovative ideas, Kevin has made a lasting impact on our team and clients alike.⁠

⁠Thank you, Kevin, for your hard work and all the moments that have shaped our success together. Here’s to the next chapter of excellence!⁠

Help us in congratulating Kevin on this milestone by visiting the link below.

Congratulate Kevin


Karie M. OConnor

Kevin G. Carani

disclosure

THIS COMMENTARY HAS BEEN PREPARED BY CLEARWATER CAPITAL PARTNERS. THE OPINIONS VOICED IN THIS MATERIAL ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE OR BE CONSTRUED AS PROVIDING LEGAL, ACCOUNTING, OR SPECIFIC INVESTMENT ADVICE OR RECOMMENDATIONS FOR ANY INDIVIDUAL. ALL ECONOMIC DATA IS DERIVED FROM PUBLIC SOURCES BELIEVED TO BE RELIABLE. TO DETERMINE WHICH INVESTMENTS MAY BE APPROPRIATE FOR YOU, PLEASE CONSULT WITH US PRIOR TO INVESTING. INVESTING INVOLVES RISK WHICH MAY INCLUDE LOSS OF PRINCIPAL.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities, insurance products, or to adopt any investment strategy. The opinions expressed are as of the date of writing and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Clearwater Capital Partners to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. S&P 500 is a registered trademark of Standard & Poor’s Financial Services, a division of S&P Global (“S&P”)  DOW JONES, DJ, DJIA and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings (“Dow Jones”). The two main risks related to fixed-income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments.

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