The Treasury Department and Internal Revenue Service have issued rule proposals outlining compliance requirements for key pieces of SECURE 2.0 concerning automatic enrollment and catch-up contributions.
Chief among the dozens of provisions in SECURE 2.0, a comprehensive retirement security package Congress passed in 2022, was one that requires all newly formed 401(k) and 403(b) plan to automatically enroll employees in their plan, unless they opt out, at an initial amount between 3% and 10%. The amount will then increase by one percentage point annually until it reaches between 10% and 15%. Existing plans — those created before Dec. 29, 2022 — will not be impacted, and there are exceptions for new and small businesses, as well as governmental and church plans.
The provision took effect Jan. 1.
Treasury and IRS on Jan. 10 issued a proposal to provide guidance to plan administrators for properly implementing the auto enrollment requirement. The proposed regulations would apply to plan years that begin more than six months after the date that final regulations are issued. Before the final regulations are applicable, plan administrators must apply a reasonable, good faith interpretation of the statute, the regulators said.
The proposal stipulates that a plan established before Dec. 29, 2022, that joins a multiple employer plan or pooled employer plan established after that date, would not be subject to the auto enrollment mandate.
In a separate proposal issued Jan. 10, Treasury and IRS floated simplifying a SECURE 2.0 provision concerning catch-up contributions.
Under SECURE 2.0, participants earning $145,000 or more are required to make catch-up retirement contributions via Roth rules, which fund accounts with after-tax money, compared to traditional rules that fund accounts with pretax money. The requirement is slated to start Jan. 1, 2026, after the IRS in 2023 announced a two-year delay.
The proposed regulations would not “require an applicable employer plan to include a qualified Roth contribution program.” However, in the case when there is no qualified Roth contribution program, any eligible participant who is subject to the Roth catch-up requirement would be barred from making catch-up contributions in the plan, the proposal states.
Comments on the proposals are due 60 days after publication in the Federal Register; March 14 for the catch-up contribution proposal and March 15 for the auto enrollment proposal.
IRS will then hold a public hearing on the catch-up contribution proposal on April 7, and another on April 8 for the auto enrollment proposal.