§414A — Title 26 Internal Revenue Code | U.S. Code

Summary

New 401(k) plans and 403(b) salary-reduction plans must automatically enroll workers unless the worker opts out. The automatic contribution starts between 3 percent and 10 percent of pay in the first year, then rises by 1 percentage point each year until it reaches at least 10 percent, capped at 15 percent. You can always pick a different rate, choose not to contribute, or take back automatic contributions under the permitted-withdrawal rules. If you do not pick investments, the money goes into a federally approved default investment. The rule does not apply to plans set up before the law was enacted, SIMPLE plans, or government and church plans. Employers in business less than 3 years are exempt, and small employers are exempt until 1 year after the first tax year in which they normally employed more than 10 people.

Title 26, §414A

Internal Revenue Code — Source: USLM XML via OLRC

(a)Except as otherwise provided in this section—

(1)an arrangement shall not be treated as a qualified cash or deferred arrangement described in section 401(k) unless such arrangement meets the automatic enrollment requirements of subsection (b), and

(2)an annuity contract otherwise described in section 403(b) which is purchased under a salary reduction agreement shall not be treated as described in such section unless such agreement meets the automatic enrollment requirements of subsection (b).

(b)(1)An arrangement or agreement meets the requirements of this subsection if such arrangement or agreement is an eligible automatic contribution arrangement (as defined in section 414(w)(3)) which meets the requirements of paragraphs (2) through (4).

(2)An eligible automatic contribution arrangement meets the requirements of this paragraph if such arrangement allows employees to make permissible withdrawals (as defined in section 414(w)(2)).

(3)(A)An eligible automatic contribution arrangement meets the requirements of this paragraph if—

(i)the uniform percentage of compensation contributed by the participant under such arrangement during the first year of participation is not less than 3 percent and not more than 10 percent (unless the participant specifically elects not to have such contributions made or to have such contributions made at a different percentage), and

(ii)effective for the first day of each plan year starting after each completed year of participation under such arrangement such uniform percentage is increased by 1 percentage point (to at least 10 percent, but not more than 15 percent) unless the participant specifically elects not to have such contributions made or to have such contributions made at a different percentage.

(B)In the case of any eligible automatic contribution arrangement (other than an arrangement that meets the requirements of paragraph (12) or (13) of section 401(k)), for plan years ending before January 1, 2025, subparagraph (A)(ii) shall be applied by substituting “10 percent” for “15 percent”.

(4)An eligible automatic contribution arrangement meets the requirements of this paragraph if amounts contributed pursuant to such arrangement, and for which no investment is elected by the participant, are invested in accordance with the requirements of section 2550.404c-5 of title 29, Code of Federal Regulations (or any successor regulations).

(c)For purposes of this section—

(1)Subsection (a) shall not apply to any simple plan (within the meaning of section 401(k)(11)).

(2)(A)Subsection (a) shall not apply to—

(i)any qualified cash or deferred arrangement established before the date of the enactment of this section, or

(ii)any annuity contract purchased under a plan established before the date of the enactment of this section.

(B)Subparagraph (A) shall not apply in the case of an employer adopting after such date of enactment a plan maintained by more than one employer, and subsection (a) shall apply with respect to such employer as if such plan were a single plan.

(3)Subsection (a) shall not apply to any governmental plan (within the meaning of section 414(d)) or any church plan (within the meaning of section 414(e)).

(4)(A)Subsection (a) shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, while the employer maintaining such plan (and any predecessor employer) has been in existence for less than 3 years.

(B)Subsection (a) shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.

(C)In the case of a plan maintained by more than 1 employer, subparagraphs (A) and (B) shall be applied separately with respect to each such employer, and all such employers to which subsection (a) applies (after the application of this paragraph) shall be treated as maintaining a separate plan for purposes of this section.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of the enactment of this section, and such date of enactment, referred to in subsec. (c)(2), is the date of enactment of Pub. L. 117–328, which was approved Dec. 29, 2022.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 117–328, div. T, title I, § 101(c), Dec. 29, 2022, 136 Stat. 5277, provided that: “The

Amendments

made by this section [enacting this section] shall apply to plan years beginning after December 31, 2024.”

§414A Requirements Related to Automatic Enrollment