Thanks to SECURE Act 2.0, newly established 401(k) and 403(b) plans must now have an automatic enrollment. The SECURE Act 2.0 was passed in December 2022 and made sweeping changes to retirement plan regulations.

Plans with an automatic enrollment feature immediately enroll employees in the employer-sponsored plan once employees satisfy eligibility requirements. 401(k) and 403(b) plans established after December 29, 2022, must have an automatic enrollment feature. The Internal Revenue Service released Notice 2024-02 to clarify when a plan is “established” for purposes of determining whether the plan must have an automatic enrollment feature. The IRS is accepting public comments related to Notice 2024-02 through April 22, 2024. 

The plan’s adoption date determines whether it is subject to mandatory automatic enrollment. A plan adopted before December 29, 2022, but not effective until after December 29, 2022, is not subject to mandatory automatic enrollment. For example, a 401(k) plan adopted on October 3, 2022, but not effective until January 1, 2023, does not have to have automatic enrollment. 

Suppose two plans, both of which were adopted before December 29, 2022, are merged to create a new ongoing plan with an effective date after December 29, 2022. In that case, the new ongoing plan is not subject to mandatory automatic enrollment. Similarly, a plan that is a spin-off of a plan that was established before December 29, 2022, is not treated as being established after December 29, 2022, and is not subject to mandatory automatic enrollment unless the spun-off plan is maintained or sponsored by an employer that did not maintain or sponsor the plan from which the spin-off plan was spun-off.

Employers that maintain or sponsor newly established 401(k) and 403(b) plans subject to mandatory automatic enrollment must establish the plan in a way that satisfies the requirements listed in Code Section 414A. Very generally,

• Employees must be enrolled in the plan immediately upon satisfying the eligibility requirements.
• In the first year of participation, employees are treated as electing to defer a minimum of 3% but not more than 10% of their compensation. The plan sponsor must decide the default deferral percentage and apply it uniformly to all participants.
• In the years following the first year of participation, participants’ deferral percentage must increase by 1% each year, up to a maximum of 10% (for plan years ending before January 1, 2025) or 15% (for plan years on or after January 1, 2025).
• Employees may make an affirmative election to change their deferral rate at the frequency allowed under the terms of the plan.
• Employers must provide a notice that details an employee’s right to opt out of the plan or elect a different deferral rate and describes the default investment selected for participants if the participant fails to make an investment election.
• Participants must have a reasonable opportunity to elect to opt out of the plan.
• Within 90 days of the first deferral made under automatic enrollment, participants must have an opportunity to elect to withdraw all of the deferrals made to the plan, plus any earnings.