The mandatory auto-enrollment rules under SECURE 2.0 apply differently to retirement plans depending on when they were established. Employers need to understand the distinction between pre-enactment and post-enactment plans to ensure compliance and avoid unintended penalties.
What Is a Pre-Enactment Plan?
A pre-enactment plan is any 401(k) or 403(b) plan that was established before December 29, 2022. These plans are exempt from the mandatory auto-enrollment requirements. Employers who maintain pre-enactment plans are not required to adopt auto-enrollment, but they may choose to do so voluntarily.
What Is a Post-Enactment Plan?
A post-enactment plan is any 401(k) or 403(b) plan created on or after December 29, 2022. These plans must comply with the new auto-enrollment rules starting in the 2025 plan year. Employers sponsoring post-enactment plans must:
- Automatically enroll eligible employees at a minimum contribution rate of 3%.
- Increase contribution rates by 1% annually until they reach at least 10% (up to a maximum of 15%).
- Provide an opt-out option for employees who do not wish to participate.
Merging Pre-Enactment and Post-Enactment Plans
Employers who are considering merging or modifying their retirement plans need to be aware of how these changes affect compliance:
- If a pre-enactment plan merges with another pre-enactment plan, it retains its exempt status.
- If a pre-enactment plan merges with a post-enactment plan, the resulting plan must comply with the auto-enrollment rules.
- Plans that expand eligibility to new groups of employees should review whether this impacts their compliance requirements.
What Employers Should Do Next
- Determine your plan’s status: Identify whether your retirement plan qualifies as pre-enactment or post-enactment.
- Evaluate any upcoming plan changes: If you are merging or restructuring plans, ensure you understand how the new rules apply.
- Consider voluntary auto-enrollment: Even if not required, implementing auto-enrollment can increase employee participation and enhance retirement readiness.
- Consult with a financial advisor: Reviewing your plan with a professional can help ensure compliance and optimize retirement benefits.
For more details on compliance with pre-enactment and post-enactment plan rules, visit the IRS website or CLICK HERE to make an appointment.