Automatic Enrollment Requirements Under Section 414A
Published Date: 1/14/2025
Proposed Rule
Summary
Starting soon, certain retirement plans must automatically enroll workers thanks to new rules from the SECURE 2.0 Act. This affects employers, employees, and plan managers by making saving for retirement easier and more automatic. Comments on these rules are open until March 17, 2025, with a public hearing on April 8, so get ready to save smarter and maybe speak up!
Analyzed Economic Effects
7 provisions identified: 5 benefits, 1 costs, 1 mixed.
Minimum Defaults and Automatic Raises
The proposed rules require that an EACA's initial default contribution for an employee be a uniform percentage between at least 3% and not more than 10%. The default must increase by one percentage point for each plan year after each completed year of participation until it reaches at least 10%, and the percentage may not exceed 15% (subject to a lower maximum for certain plans under section 414A(b)(3)(B)).
Mandatory Auto‑Enrollment for Certain Plans
For plan years beginning after December 31, 2024, certain cash-or-deferred arrangements (CODAs) and salary-reduction agreements must satisfy the new Section 414A automatic enrollment rules and be eligible automatic contribution arrangements (EACAs). This change affects participants, beneficiaries, employers maintaining those plans, and plan administrators for plans that include CODAs or salary-reduction agreements.
90‑Day Permissive Withdrawal Right
Under the rules, employees who are automatically enrolled in an EACA may elect a permissive withdrawal of default elective contributions (and attributable earnings) if the election is made within 90 days after the first default elective contribution. The withdrawal is includible in gross income for the year but not subject to the additional 72(t) early distribution tax.
Default Investments Must Use QDIA Rules
Amounts contributed under an EACA for which a participant makes no investment election must be invested in accordance with the qualified default investment alternative rules at 29 CFR 2550.404c-5 (or any successor regulations).
Who Is Exempt From Auto‑Enrollment Rules
Section 414A does not apply to: SIMPLE 401(k) plans; governmental plans and church plans; qualified CODAs or 403(b) plans established before December 29, 2022; plans maintained by a new business while the employer (and any predecessor) has been in existence for less than 3 years (measured as of the beginning of the plan year); and plans of small employers until the first plan year beginning at least 12 months after the close of the employer's first taxable year in which the employer normally employed more than 10 employees. For multiple employer plans, these new‑business and small‑business exceptions apply on an employer‑by‑employer basis.
EACAs Must Cover Eligible Part‑Time Employees
A plan satisfies Section 414A only if its EACA covers all employees who are eligible to elect contributions under the plan, including long‑term, part‑time employees described in section 401(k)(15) of the Code or section 202(c) of ERISA.
Existing Affirmative Elections Preserved
The proposed rules permit an EACA to not apply the default election to any employee who, on the date the plan is first required to satisfy the automatic enrollment requirements, had an affirmative election in effect to have contributions made (in a specified amount or percentage) or not have contributions made. Such employees keep their existing election.
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