SECURE 2.0: Automatic Enrollment- Now What? Feb 13
SECURE 2.0 requires new 401(k) and deferral 403(b) plans to have an automatic enrollment provision (Act Section 101).
The default deferral percentage is 3% to 10% with an automatic increase of 1% per year thereafter, to a maximum of at least 10%, but no more than 15%.
- This is an eligible automatic contribution arrangement (EACA),
- A Qualified Default Investment (QDIA) is required, and
- Must allow permissible withdrawals (up to 90 days after first automatic deferral).
- Plans adopted before December 29, 2022
- SIMPLE 401(k)
- Governmental and church plans
- Plans sponsored by an employer who normally employees less than 11 employees
- New business- for the first three years the business is in existence.
Effective Date: For Plan Years beginning after December 31, 2024 but applies to all plans established after December 29, 2022.
Practice thoughts: If a plan does not want to deal with the automatic increase provision, they can just automatically enroll employees at 10%. As always with automatic enrollment, a participant can choose their own deferral percentage. Also, for plans starting in now and going forward that will have to adopt automatic enrollment and automatic increase in 2025, they may want to just bite the bullet and adopt both now.
Another thought, there is still a tax credit for adding automatic enrollment to an existing plan. Generally, it is $500 for 3 taxable years beginning with the first taxable year in which the automatic enrollment is added.
Plans Affected: 401(k), 403(b), SIMPLE 401(k)
Act Section: 101