Proposed regs address enrollment for certain retirement plans

The IRS has published proposed regulations (REG-100669-24) addressing the new automatic enrollment requirements enacted as part of SECURE 2.0 in December 2022.

Effective for plan years beginning after Dec. 31, 2024, the new automatic enrollment rules generally require Section 401(k) and 403(b) plans to automatically enroll participants when they become eligible, though participants may affirmatively opt out of coverage. The initial automatic enrollment amount must be at least 3%, but not more than 10% of a participant’s compensation, with at least 1% increases each year until it reaches at least 10% (but not more than 15%).

The new requirements will not apply to 401(k) and 403(b) plans that were in existence on Dec. 29, 2022, under grandfathering rules, and there are other exceptions for small businesses with 10 or fewer employees, businesses less than three years old, church plans and governmental plans.

The proposed regulations also include proposed guidance on other changes made by SECURE 2.0 that are related to the new automatic enrollment rules.

The proposed regulations are generally proposed to apply to plan years that begin more than six months after the date that final regulations are issued, but the rules are now in the hands of the Trump administration. The preamble also provides that, for plan years after Dec. 31, 2024 (the statutory effective date), but before the applicability date of the final regulations, plan sponsors generally must comply with a reasonable, good faith interpretation of the applicable statutory provisions.