The new mandatory auto-enrollment rules bring significant changes, but not all businesses are affected in the same way. Small businesses and multiple employer plans (MEPs) have specific exemptions and considerations that employers should understand as they prepare for the upcoming changes.
How Small Businesses Are Affected
Small businesses, defined as those with 10 or fewer employees, are exempt from the mandatory auto-enrollment requirements. Additionally, businesses that have been in existence for less than three years are also not required to implement auto-enrollment.
However, small business owners should still consider offering auto-enrollment as a best practice for encouraging employee retirement savings. Even though it’s not required, auto-enrollment can increase participation rates and improve financial wellness for employees.
Growing Beyond the Exemption
If a small business grows beyond the 10-employee threshold, it must comply with the auto-enrollment requirements starting with the first plan year after it has exceeded this threshold for at least 12 months. Employers should track their workforce size carefully and plan ahead for any necessary adjustments to their retirement plans.
Multiple Employer Plans (MEPs) and Auto-Enrollment
MEPs allow multiple unrelated employers to participate in a single retirement plan, often making administration easier and reducing costs. The new auto-enrollment rules apply to MEPs, but the impact depends on the size and status of the participating employers.
- Exemptions apply on an employer-by-employer basis within the MEP. A small business that qualifies for an exemption can still participate in a MEP without being subject to auto-enrollment.
- Employers that join a MEP after December 29, 2022, are treated as post-enactment employers and must comply with the new auto-enrollment rules unless they qualify for an exemption.
What Small Businesses and MEP Participants Should Do Next
- Determine whether your business qualifies for an exemption based on employee count and business age.
- Monitor workforce size to anticipate when compliance may be required.
- Consider auto-enrollment voluntarily to boost employee participation and streamline retirement planning.
- Work with a retirement plan advisor to navigate MEP participation and compliance requirements.
For more information on how auto-enrollment affects small businesses and MEPs, visit the IRS website or CLICK HERE to make an appointment to discuss your specific situation.