§414A Requirements Related to Automatic Enrollment

Summary

Requires most 401(k) plans and 403(b) salary-reduction agreements to use an automatic enrollment setup that meets specific rules. The plan must be an "eligible automatic contribution arrangement" (a special kind of automatic enrollment defined in law) and must let employees make "permissible withdrawals" (certain allowed takebacks of contributions). The default contribution rate in the first year must be at least 3% and no more than 10%, unless the worker opts out or chooses a different rate. Each year after the first, the default rate must go up by 1 percentage point until it reaches at least 10% and no more than 15% (but for plan years ending before January 1, 2025, the upper limit is 10%). Money put in by default must be invested following the rules in 29 C.F.R. 2550.404c-5. Some plans are excluded. SIMPLE plans, government and church plans, and plans started before this rule was passed are not covered (but an employer that joins a multiemployer plan after the rule was passed is treated as if the rule applies). New employers in business less than 3 years are exempt. Small employers are exempt until one year after the end of the first taxable year in which they normally had more than 10 employees. For multiemployer plans, the new- and small-employer tests are applied separately to each employer, and employers subject to the rule are treated as running separate plans for these purposes.