2025 401(k) Trends And Their Legal Implications: What HR Needs To Know

Elevating 401(k) planning from administrative headache to financial, strategic asset

As we enter 2025, human resources (HR) professionals face evolving legal and compliance challenges that necessitate a forward-looking approach to benefits management. Among these challenges, 401(k) plan administration stands out, not just as a fiduciary obligation but as a strategic tool for talent acquisition, retention, and overall financial wellness. With the Secure 2.0 Act introducing new provisions and litigious terrain surrounding plan mismanagement, HR leaders must align their strategies to mitigate risks while maximizing value.

Here's a breakdown of key 2025 trends, the associated legal implications, and actionable steps HR professionals can take to elevate their organizations' retirement benefits offerings.

 

Trend 1: Expanding Access to Retirement Plans

Companies are enhancing retirement plan services by incorporating digital tools to assist employees in managing their investments. New Secure 2.0 provisions aim to increase participation in employer-sponsored retirement plans through automatic enrollment, reduced eligibility requirements for part-time workers, and tax credits for small businesses adopting new plans. 

New 401(k) plans must automatically enroll eligible employees with contribution rates between 3% and 10%, which will automatically increase annually unless the employee opts out. While these changes promise broader access, they also impose heightened compliance responsibilities on HR teams.

Legal Implications: Failing to adapt to these requirements could result in operational deficiencies or reporting violations under the Employee Retirement Income Security Act (ERISA). Employers must ensure plan eligibility rules are updated and compliance processes streamlined to avoid potential penalties.

Action Steps:

1. Review and update plan documents to reflect changes in eligibility criteria.
2. Automate enrollment processes to ensure compliance and reduce administrative burden.
3. Educate HR teams and other stakeholders on new legal requirements and their operational impact.

Trend 2: The Rise of Comprehensive Financial Wellness Programs

We're seeing a clear increase in employers integrating retirement planning into broader financial wellness initiatives. This trend shifts the focus from passive plan administration to proactive employee engagement for HR teams. Enhanced education and personalized tools empower employees to make informed decisions about their financial futures. 

Legal Implications: Transparency in fee disclosure and investment options is critical. Employers must avoid excessive fees and demonstrate prudence in plan management to mitigate fiduciary risk. Failure to provide clear and accurate information could result in lawsuits and reputational damage.

Action Steps:

1. Benchmark plan fees and services annually to ensure competitiveness and compliance with fiduciary standards.
2. Partner with advisors to deliver transparent, jargon-free financial education tailored to employee needs.
3. Leverage technology to provide real-time analytics and improve decision-making for employees and plan administrators.

Trend 3: Adapting to an Aging Workforce

The Bureau of Labor Statistics reports a 117% increase in employment for workers aged 65 and older over the past 20 years. With an aging population and employees staying in the workforce longer, companies must be prepared to tailor their retirement planning to accommodate older demographics. Provisions such as increased catch-up contributions and extended required minimum distribution (RMD) ages reflect this shift.

The catch-up contribution limits will increase heavily for individuals aged 60 to 63, allowing them to contribute up to $34,750 annually to their retirement accounts. This is part of the SECURE 2.0 Act changes aimed at boosting retirement savings for those nearing retirement age.

Legal Implications: Plan sponsors must align offerings with the needs of an aging workforce while complying with Secure 2.0 provisions. Missteps in plan design or implementation could lead to discrimination claims or regulatory scrutiny.

Action Steps:

1. Update contribution limits and communicate changes to eligible employees.
2. Offer tailored savings strategies through one-on-one advisory sessions.
3. Incorporate flexible work and retirement options into benefits packages to address diverse employee needs.

Protecting Your Plan: The Importance of Benchmarking

Along with these trends, a common challenge in benefits management is the infrequent benchmarking of 401(k) plans. Abernathy-Daley has found that nearly 80% of companies with over 100 employees overpay for plan services due to outdated contracts or inadequate oversight. This squanders resources and exposes organizations to legal liabilities.

HR professionals should regularly conduct third-party audits to mitigate these risks and ensure competitive plan fees and services align with industry standards. Separating recordkeeping, investment management, and advisory services can enhance cost transparency. Finally, educating employees about fee structures and investment options fosters trust and encourages active participation in their retirement plans.

Some HR folks may find these trends overwhelming at face value. However, by embracing them and proactively addressing the associated legal challenges, they can reduce legal problems in the future and be on the path to a successful and compliant 2025.

	Steven Abernathy is the Principal and Chairman of the Board at The Abernathy Group II Family Office. He is also the Chief Investment Officer and Portfolio Manager at The Abernathy Group Growth Fund.
	Matt Daley is the President of Abernathy Daley 401k Consultants. He is a management consultant, a published thought leader, and an expert in the administration of corporate 401k plans.