Communication with retirement plan sponsors and participants has been key for Vanguard Group this year as it — along with the nation’s retirement plan record keepers — readies for the implementation of a key SECURE 2.0 provision.
Beginning Jan. 1, people ages 60 to 63 will be able to contribute more to their 401(k) plans, as well as most 403(b) and 457(b) plans. Currently, individuals over 50 can make catch-up contributions of up to $7,500 to their defined contribution plan, but that limit will soon be raised to $11,500 for people ages 60-63.
Vanguard, which has $719 billion in DC record-keeping assets, according to Pensions & Investments data, has updated its record-keeping system to allow for the increased contributions, and has engaged with its plan sponsor clients and the eligible participants, according to David Stinnett, principal and head of strategic retirement consulting at Vanguard.
“Our communications are much more around awareness and explaining the benefit,” Stinnett said. “In order to do a catch-up contribution, you have to be maxing out already. To max out already you need to have the discipline, the focus and generally the higher compensation to be able to do that.”
Individual annual contribution limits to 401(k) and other defined contribution plans will rise to $23,500 in 2025, up $500 from the current limit, the Internal Revenue Service announced earlier this month.
Vanguard is ramping up communications for participants to let them know they can contribute more at age 60 while also letting older participants know the limit will revert back to $7,500 once they turn 64, Stinnett said.
When asked why Congress only increased the catch-up limits for 60-to-63-year-olds, Stinnett said it concerns federal tax revenue.
“If you’re able to contribute and get more of a tax benefit into a tax qualified plan, that’s a wonderful thing,” he said. “But that’s compensation that’s not being taxed and so I think Congress wanted to allow people to contribute more but they needed to balance that with fiscal policy.”
Hence, the increased limits only apply to a narrow window of workers.
Of Vanguard’s participants who have access to plans that allow catch-up contributions, 15% utilize them, according to the firm’s How America Saves report released in June.
Stinnett said it’s unclear if the higher limits will increase uptake in catch-up contributions, but the added communication will bring more awareness.
“If you’re able to do it, it’s a very attractive feature,” he said.
