§414A Requirements Related to Automatic Enrollment

Summary

A 401(k) plan or a 403(b) salary-reduction annuity only counts as a qualified plan if it uses automatic enrollment that meets rules. The plan must be an "eligible automatic contribution arrangement" and must let workers take allowed withdrawals. The plan must pick one default percent of pay for everyone. In a worker’s first year the default must be at least 3% and no more than 10%, unless the worker opts out or chooses a different rate. Each year after a year of participation the default must go up by 1 percentage point until it reaches at least 10% but no more than 15%. For plan years ending before January 1, 2025, the top limit is 10% instead of 15%. If a worker does not choose investments, the plan must invest the money following the Department of Labor rule at 29 C.F.R. 2550.404c-5 (or any successor rule). Some plans do not have to follow these rules. Exemptions include SIMPLE plans, plans set up before the law took effect, government and church plans, employers in business less than 3 years, and a delay until one year after the employer’s first year with more than 10 employees. For plans run by more than one employer, those start-up exceptions are checked separately for each employer, and certain multiemployer adoptions are treated like single-employer plans.