As part of our commitment to keeping you informed of regulatory changes, we want to update you on the Automatic Enrollment Requirement for certain 401(k) plans, effective January 1, 2025.

The SECURE 2.0 Act of 2022 (SECURE 2.0) requires new 401(k) plans established on or after December 29, 2022, to implement an automatic enrollment feature in 2025 unless an exception applies. Employers must know whether the SECURE 2.0 mandate applies to their 401(k) plan, and if so, how to implement and administer a compliant automatic enrollment feature properly in 2025. Otherwise, a costly correction could become necessary.

Here’s what you need to know:

Who is Affected

This requirement applies only to new 401(k) plans established after December 29, 2022. Existing plans are generally exempt.

Automatic Enrollment for New Hires

Beginning January 1, 2025, eligible new hires must be automatically enrolled in the plan at a base contribution rate (e.g., 3%) with the potential for annual increases.

Employee Opt-Out

Employees maintain the option to opt out of the auto-enrollment or adjust their contribution rate if they choose.

Next Steps for Compliance

To help ensure you’re prepared for these changes:

1. Review Your Plan Details: Determine if your retirement plan falls under the new requirement and assess whether adjustments are needed.
2. Prepare Employee Communications: Informing employees about auto-enrollment, opt-out provisions, and contribution options can help smooth the transition.
3. Update Processes: Adjust payroll and administrative workflows as needed to incorporate auto-enrollment for eligible new hires.

The consequences can be significant for employers who don’t comply with SECURE 2.0’s automatic enrollment mandate timely. Revenue Procedure 2021-30 sets forth a safe harbor method for correcting reasonable errors to automatically enroll or escalate employees.

In general, it involves the employer allocating a corrective contribution to affected employees. The contribution amount could be steep if the employer improperly excluded a lot of employees for an extended period of time.

Please reach out to your CIP representative if you have any questions or need guidance on next steps for compliance.