Proposed Rule2025-00501
Automatic Enrollment Requirements Under Section 414A
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 14, 2025
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth proposed regulations that would provide guidance with respect to the automatic enrollment requirements that apply to certain retirement plans. The proposed regulations reflect statutory changes made by the SECURE 2.0 Act of 2022 requiring that certain cash or deferred arrangements and salary reduction agreements be eligible automatic contribution arrangements that satisfy additional specified requirements. The proposed regulations would affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans that include cash or deferred arrangements or annuity contracts purchased under salary reduction agreements and other retirement plans that include eligible automatic contribution arrangements. This document also provides notice of a public hearing.
Full Text
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<title>Federal Register, Volume 90 Issue 8 (Tuesday, January 14, 2025)</title>
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[Federal Register Volume 90, Number 8 (Tuesday, January 14, 2025)]
[Proposed Rules]
[Pages 3092-3107]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00501]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-100669-24]
RIN 1545-BR08
Automatic Enrollment Requirements Under Section 414A
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document sets forth proposed regulations that would
provide guidance with respect to the automatic enrollment requirements
that apply to certain retirement plans. The proposed regulations
reflect statutory changes made by the SECURE 2.0 Act of 2022 requiring
that certain cash or deferred arrangements and salary reduction
agreements be eligible automatic contribution arrangements that satisfy
additional specified requirements. The proposed regulations would
affect participants in, beneficiaries of, employers maintaining, and
administrators of certain retirement plans that include cash or
deferred arrangements or annuity contracts purchased under salary
reduction agreements and other retirement plans that include eligible
automatic contribution arrangements. This document also provides notice
of a public hearing.
DATES: Written or electronic comments must be received by March 17,
2025. A public hearing on this proposed regulation has been scheduled
for April 8, 2025, at 10 a.m. ET. Requests to speak and outlines of
topics to be discussed at the public hearing must be received by March
17, 2025. If no outlines are received by March 17, 2025, the public
hearing will be cancelled.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-100669-
24) by following the online instructions for submitting comments.
Requests for a public hearing must be submitted as prescribed in the
``Comments and Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comment submitted electronically or
on paper to its public docket on <a href="http://www.regulations.gov">www.regulations.gov</a>. Send paper
submissions to: CC:PA:01:PR (REG-100669-24), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
call Christina M. Cerasale at (202) 317-4102 or Kara M. Soderstrom at
(202) 317-6799; concerning submission of comments, the hearing, and the
access code to attend the hearing by telephone, call the Publications
and Regulations Section at (202) 317-6901 (not toll-free numbers) or
email <a href="/cdn-cgi/l/email-protection#037376616f6a606b6662716a6d6470436a71702d646c75"><span class="__cf_email__" data-cfemail="e39396818f8a808b8682918a8d8490a38a9190cd848c95">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
These proposed regulations are promulgated under section 7805(a) of
the Internal Revenue Code (Code), which provides that ``the Secretary
shall prescribe all needful rules and regulations for the enforcement
of [the Code], including all rules and regulations as may be necessary
by reason of any alteration of law in relation to internal revenue.''
In addition, section 341 of the SECURE 2.0 Act of 2022 (SECURE 2.0
Act), enacted on December 29, 2022, as Division T of the Consolidated
Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459 (2022),
instructs the Secretaries of the Treasury and Labor (or their
delegates) to adopt regulations related to the consolidation of notices
required for defined contribution plans under the Code and the Employee
Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat.
829, as amended (ERISA).
Background
This notice of proposed rulemaking sets forth a proposed regulation
under section 414A of the Code that would be added to the Income Tax
Regulations (26 CFR part 1). Section 414A, which was added to the Code
by section 101 of the SECURE 2.0 Act, provides that certain retirement
plans must automatically enroll employees.
In addition to adding a new regulation under section 414A of the
Code, this notice of proposed rulemaking sets forth proposed amendments
to the regulations under section 414(w). These amendments to Sec.
1.414(w)-1 would reflect the application of section 414A and the
exception to the notice requirements for unenrolled participants set
forth in section 414(bb), as added to the Code by section 320 of the
SECURE 2.0 Act. The proposed amendments to Sec. 1.414(w)-1 also would
address section 402A(e)(5)(C) of the Code, which was added to the Code
by section 127 of the SECURE 2.0 Act, as well as section 341 of the
SECURE 2.0 Act. Section 402A(e)(5)(C) of the Code and section 341 of
the SECURE 2.0 Act permit the consolidation of certain notices required
under the Code and ERISA.
I. In General
A. Cash or Deferred Arrangements and Salary Reduction Agreements
Section 401(k)(1) provides that a profit-sharing, stock bonus, pre-
ERISA money purchase, or rural cooperative plan will not fail to
qualify under section 401(a) merely because it includes a cash or
deferred arrangement (CODA) \1\ that is a qualified CODA. Under section
401(k)(2), a CODA is a qualified CODA only if it satisfies certain
requirements. These requirements include that elective contributions
under the CODA are subject to the section 401(k)(2)(B)
[[Page 3093]]
restriction on when distributions may be made, and that the arrangement
satisfies the actual deferral percentage (ADP) test in section
401(k)(3)(A)(ii).\2\
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\1\ Under Sec. 1.401(k)-1(a)(2)(i), a CODA generally is an
arrangement providing for an election by an employee to have the
employer provide either contributions to a plan described in section
401(a) or payments directly in cash.
\2\ The ADP test in section 401(k)(3)(A)(ii) compares the
average deferral percentage for highly compensated employees with
the average deferral percentage for non-highly compensated
employees. As an alternative to satisfying the annual ADP test, a
plan may satisfy the provisions of section 401(k)(11), (12), (13),
or (16).
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Section 403(b)(1) of the Code provides for an exclusion from gross
income of certain contributions that are used to purchase an annuity
contract, including contributions that are made under a salary
reduction agreement. Although there is no direct definition of salary
reduction agreement in section 403(b), several provisions of the Code
set forth rules that apply to the use of a salary reduction agreement
to purchase an annuity contract described in section 403(b). For
example, section 403(b)(11) provides distribution restrictions that
apply to ``contributions made pursuant to a salary reduction
agreement.''
B. Automatic Enrollment
Section 902 of the Pension Protection Act of 2006, Public Law 109-
280, 120 Stat. 780 (PPA `06), added sections 401(k)(13) and 414(w) to
the Code to facilitate automatic contribution arrangements (also
referred to as automatic enrollment) in qualified CODAs under section
401(k). Section 414(w) also applies to automatic contribution
arrangements under section 403(b) plans; section 457(b) plans
maintained by governmental employers described in section 457(e)(1)(A);
simplified employee pensions, the terms of which provide for a salary
reduction arrangement described in section 408(k)(6); and SIMPLE
individual retirement accounts described in section 408(p). An
automatic contribution arrangement is a CODA or other similar
arrangement providing for elections on the part of eligible employees
that includes a default election under which an eligible employee is
treated as having elected to have a specified contribution made on the
employee's behalf under the plan while permitting the employee to make
an affirmative election to have contributions made in a different
amount on the employee's behalf (including no contributions).\3\
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\3\ Section 902 of PPA '06 also added a new section 514(e) to
ERISA, which broadly provides that, notwithstanding any other
provision of section 514, title I of ERISA supersedes State laws
that would directly or indirectly prohibit or restrict the inclusion
of an automatic contribution arrangement in a plan.
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1. Qualified Automatic Contribution Arrangements Under Section
401(k)(13)
Section 401(k)(13) provides a design-based safe harbor for a CODA
that provides for automatic enrollment at a specified level and meets
certain employer contribution, notice, and other requirements. A CODA
that satisfies these requirements, referred to as a qualified automatic
contribution arrangement (QACA), is treated as satisfying the ADP test.
Section 401(k)(13)(C)(ii) provides that the default election in a
QACA ceases to apply to any eligible employee if the employee makes an
affirmative election to not have any elective contributions made on the
employee's behalf or to have elective contributions made in a specified
amount or percentage of compensation on the employee's behalf.
Reflecting that provision, Sec. 1.401(k)-3(j)(1)(ii) provides that the
default election ceases to apply with respect to an eligible employee
for periods of time with respect to which the employee has an
affirmative election that is currently in effect to have elective
contributions made in a different amount on the employee's behalf (in a
specified amount or percentage of compensation) or not have any
elective contributions made on the employee's behalf.
Section 401(k)(13)(C)(iii) sets forth a series of minimum default
contribution percentages (based on the plan year that the arrangement
first applies to an employee) that an automatic contribution
arrangement must satisfy to be a QACA and requires that the default
contribution percentages apply uniformly. Under Sec. 1.401(k)-
3(j)(2)(iii), a plan does not fail to satisfy this uniform percentage
requirement merely because: (1) the percentage varies based on the
number of years or portions of years an eligible employee has
participated in the automatic contribution arrangement intended to be a
QACA; (2) the rate of elective contributions under a cash or deferred
election that is in effect immediately prior to the effective date of
the default percentage under the QACA is not reduced; (3) the rate of
elective contributions is limited so as not to exceed the limits of
sections 401(a)(17), 402(g) (determined with or without catch-up
contributions), and 415; or (4) the default election is not applied
during the period an employee is not permitted to make elective
contributions pursuant to section 414(u)(12)(B)(ii).
Section 401(k)(13)(C)(iv) provides an exception from the
application of the default election under a QACA for eligible employees
who were eligible to participate in the CODA (or a predecessor CODA)
immediately before the effective date of the QACA and who have an
election in effect on that effective date. Reflecting that provision,
Sec. 1.401(k)-3(j)(1)(iii) provides that an automatic contribution
arrangement does not fail to be a QACA merely because the default
election is not applied to an employee who was eligible under the CODA
(or a predecessor arrangement) immediately prior to the effective date
of the QACA and on that effective date had an affirmative election in
effect (that remains in effect) to have elective contributions made on
the employee's behalf (in a specified amount or percentage of
compensation) or not have elective contributions made on the employee's
behalf.
Section 1.401(k)-3(j)(2)(iv) provides that minimum percentages in a
QACA are determined without regard to whether an employee has continued
to be eligible to make contributions under the plan. However, Sec.
1.401(k)-3(j)(2)(iv) provides that a plan is permitted to treat an
employee who for an entire plan year did not have contributions made
pursuant to a default election under a QACA as if the employee also had
not had such contributions for any prior plan year.
2. Eligible Automatic Contribution Arrangements Under Section 414(w)
Section 414(w) facilitates automatic enrollment by providing relief
from the distribution restrictions under section 401(k)(2)(B),
403(b)(7), 403(b)(11), or 457(d)(1)(A) in the case of an eligible
automatic contribution arrangement (EACA). Under this relief, a plan
may permit an employee who was automatically enrolled under an EACA to
take a distribution within a limited period after the initial default
elective contribution with respect to the employee was made.
Under section 414(w)(1) and (2), an applicable employer plan \4\
that contains an EACA is permitted to allow employees to elect to
receive a distribution, called a permissive withdrawal, equal to the
amount of default elective contributions (and attributable earnings)
made with respect to the employee beginning with the first payroll
period to which the EACA
[[Page 3094]]
applies to the employee and ending with the effective date of the
election. The election must be made within 90 days after the date of
the first default elective contribution with respect to the employee
under the arrangement.\5\
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\4\ Section 414(w)(5) defines an applicable employer plan for
purposes of section 414(w) as a trust described in section 401(a)
that is exempt from tax under section 501(a), a plan described in
section 403(b), a section 457(b) plan that is maintained by a
governmental employer described in section 457(e)(1)(A), a
simplified employee pension the terms of which provide for a salary
reduction arrangement described in section 408(k)(6), or a SIMPLE
individual retirement account described in section 408(p).
\5\ Section 414(w)(1)(A) and (B) provides that the amount of the
distribution is includible in the gross income of the employee for
the taxable year in which the distribution is made but is not
subject to the additional income tax on early distributions under
section 72(t).
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Section 414(w)(3) defines an EACA as an arrangement under which:
(1) a participant may elect to have the employer make payments as
contributions under the plan on behalf of the participant, or to the
participant directly in cash; (2) the participant is treated as having
elected to have the employer make such contributions in an amount equal
to a uniform percentage of compensation provided under the plan until
the participant specifically elects not to have such contributions made
(or specifically elects to have such contributions made at a different
percentage); and (3) participants are provided a notice that satisfies
the requirements of section 414(w)(4).
Section 414(w)(4) provides that the administrator of a plan that
includes an EACA must, within a reasonable period before each plan
year, provide each employee to whom the arrangement applies for the
plan year written notice of the employee's rights and obligations under
the arrangement that is sufficiently accurate and comprehensive to
apprise the employee of the employee's rights and obligations. Section
414(w)(4)(A)(ii) requires that the notice be written in a manner
calculated to be understood by the average employee to whom the
arrangement applies. Section 414(w)(4)(B) provides that the notice must
explain: (1) the employee's rights under the arrangement to elect not
to have elective contributions made on the employee's behalf (or to
elect to have contributions made at a different percentage), and (2)
how contributions made under the arrangement will be invested in the
absence of any investment decision by the employee. In addition, the
employee must be given a reasonable period of time after receipt of the
notice and before the first elective contribution is made to make an
election described in the notice.
The Treasury Department and the IRS issued a regulation under
section 414(w) on February 24, 2009 (TD 9447, 74 FR 8200). Section
1.414(w)-1(b)(2) includes rules that address the uniform percentage
requirement of section 414(w)(3)(B), including rules that incorporate
the exceptions to the uniform percentage requirement for a default
elective contribution for a QACA set forth in Sec. 1.401(k)-
3(j)(2)(iii).
II. New Automatic Enrollment Requirements and Other Changes Regarding
EACAs Under the SECURE 2.0 Act
A. Section 101 of the SECURE 2.0 Act
Section 101 of the SECURE 2.0 Act adds section 414A to the Code.
Under section 101(c) of the SECURE 2.0 Act, the amendments made by
section 101 apply to plan years beginning after December 31, 2024.
Section 414A(a)(1) of the Code generally provides that a CODA will
not be treated as a qualified CODA described in section 401(k) unless
the CODA satisfies the automatic enrollment requirements of section
414A(b). Similarly, section 414A(a)(2) generally provides that an
annuity contract otherwise described in section 403(b) that is
purchased under a salary reduction agreement will not be treated as
described in section 403(b) unless the salary reduction agreement
satisfies the automatic enrollment requirements of section 414A(b).
Under section 414A(b)(1), a CODA or salary reduction agreement
satisfies the automatic enrollment requirements of section 414A(b) if
the CODA or salary reduction agreement is an EACA (as defined in
section 414(w)(3)) that satisfies the additional requirements of
section 414A(b)(2) through (4). Section 414A(b)(2) requires the EACA to
allow employees to make permissible withdrawals (as defined in section
414(w)(2)). Under section 414A(b)(3)(A)(i), the minimum initial default
contribution percentage under the EACA must be at least 3 percent (but
not more than 10 percent), and under section 414A(b)(3)(A)(ii), the
default contribution percentage must increase by one percentage point
for each plan year beginning after each completed year of participation
under the EACA, up to a maximum default contribution percentage of at
least 10 percent (but not more than 15 percent).\6\ Section 414A(b)(4)
provides that amounts contributed pursuant to the EACA for which no
investment is elected by a participant must be invested in accordance
with the requirements of 29 CFR 2550.404c-5 \7\ (or any successor
regulations).
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\6\ Section 414A(b)(3)(B) provides a reduced maximum default
contribution percentage of 10 percent for certain plans with respect
to certain plan years.
\7\ The requirements of 29 CFR 2550.404c-5 relate to investments
in qualified default investment alternatives.
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Section 414A(c) sets forth certain exceptions to the requirements
of section 414A(a). In general, section 414A(a) does not apply to any:
(1) SIMPLE 401(k) plan described in section 401(k)(11); (2) qualified
CODA established before December 29, 2022 (the date of enactment of the
SECURE 2.0 Act); (3) section 403(b) plan established before December
29, 2022; (4) governmental plan described in section 414(d); (5) church
plan described in section 414(e); (6) plan maintained by a new business
as described in section 414A(c)(4)(A); or (7) plan maintained by a
small business as described in section 414A(c)(4)(B).
Certain of the exceptions in section 414A(c) include special rules
for plans maintained by more than one employer. Section 414A(c)(2)(B)
provides rules that apply in the case of an employer that, after
December 29, 2022, adopts a plan maintained by more than one employer.
Under that provision, the exception to section 414A(a) for a qualified
CODA or 403(b) plan established before December 29, 2022, will not
apply to that adopting employer, and the rules of section 414A(a) will
apply with respect to that employer as if the plan were a single plan.
In addition, under section 414A(c)(4)(C), the new business and small
business exceptions to section 414A(a) are applied separately to each
participating employer in a plan maintained by more than one employer,
and all participating employers to which section 414A(a) applies (after
the application of the new business exception in section 414A(c)(4)(A)
and the small business exception in section 414A(c)(4)(B)) are treated
as maintaining a separate plan for purposes of section 414A.
On December 20, 2023, the Treasury Department and the IRS released
Notice 2024-2, 2024-2 IRB 316, which provides initial guidance on
certain provisions of the SECURE 2.0 Act. Section II.A of Notice 2024-2
provides initial guidance in the form of questions and answers
regarding certain issues related to section 414A of the Code that
primarily addresses the scope of the exceptions under section
414A(c)(2) to the requirements of section 414A.
Q&A A-1 of Notice 2024-2 provides that, for purposes of section
414A(c)(2)(A)(i) (the exception to section 414A(a) for a qualified CODA
established before December 29, 2022), a qualified CODA is established
on the date plan terms providing for the CODA are adopted initially,
even if the plan terms providing for the CODA are effective after the
adoption date.
[[Page 3095]]
Q&A A-2 of Notice 2024-2 provides rules that apply in the case of a
merger of a plan maintained by a single employer that includes a
qualified CODA established before December 29, 2022 (a pre-enactment
qualified CODA), with another plan that includes a pre-enactment
qualified CODA. Under Q&A A-2, the treatment of the qualified CODA
included in the ongoing plan as a pre-enactment qualified CODA is
unaffected by the merger (without regard to whether the ongoing plan is
maintained by a single employer or more than one employer).
Q&A A-3 of Notice 2024-2 provides that if a plan that includes a
qualified CODA that was not established before December 29, 2022, is
merged with a plan that includes a pre-enactment qualified CODA, then,
after the merger, the qualified CODA included in the ongoing plan
generally will not be treated as a pre-enactment qualified CODA.
However, if, in connection with a disposition, acquisition, or other
transaction described in section 410(b)(6)(C), a plan maintained by a
single employer that includes a qualified CODA that was not established
before December 29, 2022, is merged with another plan maintained by a
single employer that includes a pre-enactment qualified CODA, and the
plan that includes the pre-enactment qualified CODA is designated as
the ongoing plan, then the qualified CODA included in the ongoing plan
continues to be treated as a pre-enactment qualified CODA after the
merger, provided that the merger occurs by the end of the section
410(b)(6)(C) transition period.
Q&A A-3 also provides that if a plan maintained by a single
employer includes a qualified CODA that was not established before
December 29, 2022, and is merged into a plan maintained by more than
one employer that includes a pre-enactment qualified CODA, then the
qualified CODA included in the ongoing plan would not be treated as a
pre-enactment qualified CODA with respect to that employer. However, in
that case, the merger would not affect whether the qualified CODA is
treated as a pre-enactment qualified CODA with respect to other
employers that participate in the ongoing plan.
Q&A A-4 of Notice 2024-2 provides that if a plan that includes a
qualified CODA is spun off from a plan that includes a pre-enactment
qualified CODA, the qualified CODA included in the new spun-off plan
generally is also treated as being a pre-enactment qualified CODA.
However, if the plan from which the new plan was spun off was a plan
maintained by more than one employer that was established before
December 29, 2022, then the qualified CODA included in the spun-off
plan is treated as a pre-enactment qualified CODA only if the qualified
CODA in the plan maintained by more than one employer was treated as a
pre-enactment qualified CODA with respect to the employer sponsoring
the spun-off plan.
Q&A A-5 of Notice 2024-2 provides that, in general, the rules of
section 414A that apply to qualified CODAs also apply to section 403(b)
plans. However, the exception to section 414A(a) for a section 403(b)
plan established before December 29, 2022, applies without regard to
the date of adoption of plan terms that provide for salary reduction
agreements.
Q&A A-6 of Notice 2024-2 explains that, unless an exception set
forth in section 414A(c) applies (for example, the exception for a new
or small business), section 414A(a) applies to a starter 401(k)
deferral-only arrangement described in section 401(k)(16)(B), or to a
safe harbor deferral-only plan described in section 403(b)(16)(B), for
plan years beginning after December 31, 2024.
The Treasury Department and the IRS received 12 written comments in
response to Notice 2024-2 that address the guidance provided in Section
II.A of the notice. The Treasury Department and the IRS reviewed all 12
comments, and this preamble addresses those that are relevant and
within scope for this notice of proposed rulemaking. All written
comments responding to Notice 2024-2 are available for public
inspection and copying at <a href="http://www.regulations.gov">www.regulations.gov</a>, and certain of those
comments that address Section II.A of Notice 2024-2 are discussed in
the Explanation of Provisions portion of this preamble.
B. SECURE 2.0 Act Changes Regarding EACA Notices
1. Notice Requirements for Unenrolled Participants
Section 320(b) of the SECURE 2.0 Act adds section 414(bb) to the
Code, effective for plan years beginning after December 31, 2022.
Section 414(bb)(1) provides that, with respect to any defined
contribution plan, no disclosure, notice, or other plan document is
required to be furnished under the Code to any unenrolled participant
if the unenrolled participant is furnished: (1) an annual reminder
notice (as defined in section 414(bb)(3)) of the participant's
eligibility to participate in the plan and any applicable election
deadlines under the plan, and (2) any document requested by the
participant that the participant would be entitled to receive
notwithstanding section 414(bb).
Section 414(bb)(2) defines an unenrolled participant as an employee
who: (1) is eligible to participate in a defined contribution plan, (2)
has been furnished the summary plan description pursuant to section
104(b) of ERISA for the plan and any other notices related to
eligibility under the plan and required to be furnished under the Code
or ERISA in connection with the participant's initial eligibility to
participate in the plan, (3) is not participating in the defined
contribution plan, and (4) satisfies any other criteria as the
Secretary of the Treasury may determine appropriate, as prescribed in
guidance issued in consultation with the Secretary of Labor. The last
sentence of section 414(bb)(2) of the Code provides that any
eligibility to participate in the plan following any period for which
the employee was not eligible to participate is to be treated as
initial eligibility.
Section 414(bb)(3) provides that the annual reminder notice
required under section 414(bb)(1) is the notice described in section
111(c) of ERISA (as added by section 320(a) of the SECURE 2.0 Act).
2. Combining EACA Notices With Other Notices
Section 127 of the SECURE 2.0 Act provides for the creation of
pension-linked emergency savings accounts (PLESAs) effective for plan
years beginning after December 31, 2023. Among other changes, section
127 of the SECURE 2.0 Act redesignates section 402A(e) of the Code as
section 402A(f) and adds a new section 402A(e) regarding PLESAs.\8\
Section 402A(e)(5)(A) requires the plan administrator of a plan with a
PLESA feature to furnish initial and annual notices to participants
describing certain information regarding the PLESA that meet the
requirements of section 402A(e)(5)(B). Section 402A(e)(5)(C) permits
the initial and annual notices required under section 402A(e)(5)(A) to
be included with any other notice under ERISA, including under section
404(c)(5)(B) or 514(e)(3) of ERISA, or under section 401(k)(13)(E) or
414(w)(4) of the Code, if the other notice
[[Page 3096]]
is provided to the participant at the time required for that notice.
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\8\ On January 12, 2024, the Treasury Department and the IRS
released Notice 2024-22, 2024-6 IRB 662, which provides initial
guidance regarding anti-abuse rules under section 402A(e)(12) of the
Code, as added by section 127 of the SECURE 2.0 Act, and also
addresses whether Rev. Rul. 74-55, 1974-1 CB 89, and Rev. Rul. 74-
56, 1974-1 CB 90, are applicable to PLESAs.
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The Department of Labor has provided frequently asked questions
regarding PLESAs, including with respect to the permitted consolidation
of notices under section 801(d)(3)(C) of ERISA (which is a parallel
provision to section 402A(e)(5)(C) of the Code). See Q&A-18 of ``FAQs:
Pension-Linked Emergency Savings Accounts,'' available at <a href="http://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts">www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts</a>.
Section 341 of the SECURE 2.0 Act permits a plan (as defined in
section 3 of ERISA) to consolidate two or more of the notices required
under sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections
401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code into a single
notice, provided that the combined notice satisfies certain
requirements. Section 341 of the SECURE 2.0 Act does not prevent the
consolidation of any other notices required under ERISA or the Code to
the extent otherwise permitted by the Secretary of Labor or the
Secretary of the Treasury (or their delegates), as applicable.
On October 24, 2007, the Department of Labor published in the
Federal Register (72 FR 60452) a final regulation, 29 CFR 2550.404c-5,
providing relief from certain fiduciary responsibilities under ERISA
for investments made on behalf of participants or beneficiaries who
fail to direct the investment of assets in their individual accounts.
The preamble to that final regulation indicates that the Department of
Labor anticipates that the notice requirements of sections 404(c)(5)(B)
and 514(e)(3) of ERISA and sections 401(k)(13)(E) and 414(w)(4) of the
Code could be satisfied in a single disclosure document. See 72 FR
60455 (regarding the notice requirements under section 404(c)(5)(B) of
ERISA and sections 401(k)(13)(E) and 414(w)(4) of the Code) and 72 FR
60466 (regarding the notice requirements under sections 404(c)(5)(B)
and 514(e)(3) of ERISA).
To aid plan sponsors for the 2008 plan year (the first plan year
that a plan could have included a QACA or EACA), the IRS coordinated
with the Department of Labor to post a sample ``Automatic Enrollment
Notice,'' available at <a href="http://www.irs.gov/pub/irs-tege/sample_notice.pdf">www.irs.gov/pub/irs-tege/sample_notice.pdf</a>. This
sample notice is intended to satisfy the notice requirements of
sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections 401(k)(13)(E)
and 414(w)(4) of the Code.
On April 29, 2008, the Department of Labor issued Field Assistance
Bulletin 2008-03. Q&A-10 of Field Assistance Bulletin 2008-03 explains
that the notice required under section 401(k)(12)(D) also may be
combined with the notice required under section 404(c)(5)(B) of ERISA.
Q&A-18 of ``FAQs: Pension-Linked Emergency Savings Accounts''
explains that, with respect to section 341 of the SECURE 2.0 Act, the
Department of Labor retains its position regarding the consolidation of
notices required under sections 404(c)(5)(B) and 514(e)(3) of ERISA and
sections 401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code. Q&A-
18 also explains that, under section 801(d)(3)(C) of ERISA, the initial
and annual notices that must be furnished to PLESA participants may be
included with any other notice under ERISA, including under section
404(c)(5)(B) or 514(e)(3) of ERISA, or under section 401(k)(13)(E) or
414(w)(4) of the Code, if such other notice is provided to the
participant at the time required for such notice.
Explanation of Provisions
I. Proposed Sec. 1.414A-1
A. General Rule
In accordance with section 414A(a)(1), the proposed regulation
generally would provide that a CODA will not be treated as a qualified
CODA unless the plan that includes the CODA provides that any cash or
deferred election under the CODA must satisfy the automatic enrollment
requirements of section 414A. The proposed regulation would clarify
that the determination of whether a CODA fails to satisfy these
automatic enrollment requirements (and, therefore, fails to be a
qualified CODA) is made on a plan-year basis.
Similarly, in accordance with section 414A(a)(2), the proposed
regulation generally would provide that an annuity contract described
in section 403(b) that is purchased pursuant to a salary reduction
agreement will not be treated as purchased under a section 403(b) plan
for a plan year unless the plan provides that any salary reduction
agreement under the plan must satisfy the automatic enrollment
requirements of section 414A.
B. Automatic Enrollment Requirements
1. In General
As described in section II.A of the Background portion of this
preamble, section 414A(a) generally requires a qualified CODA, or an
annuity contract described in section 403(b) that is purchased under a
salary reduction agreement, to satisfy the automatic enrollment
requirements of section 414A(b), which require the CODA or salary
reduction agreement to be an EACA, as described in section 414(w)(3),
that meets the requirements of section 414A(b)(2) through (4). Section
414A(c) sets forth exceptions to the requirements of section 414A(a)
for certain plans.
The Treasury Department and the IRS received comments in response
to Notice 2024-2 requesting that the guidance provide that certain
categories of employees need not be covered by an EACA for section
414A(b) to be satisfied. However, although section 414A(c) provides
several exceptions to the requirements of section 414A(a) for certain
types of plans, there is no provision in section 414A (or in section
101(c) of the SECURE 2.0 Act) that excludes any category of employee
from the automatic enrollment requirements of section 414A(b) of the
Code if the plan is subject to section 414A(a). Accordingly, the
proposed regulation would clarify that a CODA or salary reduction
agreement under a plan satisfies the automatic enrollment requirements
of section 414A only if the plan provides for an EACA that covers all
employees in the plan who are eligible to elect to have contributions
made on their behalf under the CODA or pursuant to the salary reduction
agreement (including long-term, part-time employees described in
section 401(k)(15) of the Code or section 202(c) of ERISA).
Commenters also requested guidance on whether an employee must be
automatically enrolled if the employee was eligible to participate in a
CODA or salary reduction agreement included in a plan before the CODA
or salary reduction agreement became subject to the automatic
enrollment requirements of section 414A(b). In response to these
comments, the proposed regulation would provide an exception to
automatic enrollment for certain employees who are eligible to make a
cash or deferred election under a CODA or to enter into a salary
reduction agreement that is comparable to the exception for certain
current employees under a QACA, as set forth in Sec. 1.401(k)-
3(j)(1)(iii). Specifically, the proposed regulation would clarify that
an EACA will not fail to satisfy section 414A merely because the
default election under the EACA does not apply to an employee who, on
the date the plan is first required to satisfy the automatic enrollment
requirements of the proposed regulation, had an affirmative election in
effect (that remains in effect) to have contributions made on the
employee's behalf under a cash or deferred election or a salary
[[Page 3097]]
reduction agreement (in a specified amount or percentage of
compensation) or not have contributions made on the employee's behalf
under a cash or deferred election or a salary reduction agreement.
2. Permissive Withdrawals
In accordance with section 414A(b)(2), the proposed regulation
would provide that an EACA satisfies the automatic enrollment
requirements of section 414A only if the plan that includes the EACA
provides that any employee who has default elective contributions made
under the EACA may elect to make a permissible withdrawal, as defined
in section 414(w)(2) and described in Sec. 1.414(w)-1(c) (that is, a
withdrawal of default elective contributions and earnings that
satisfies certain timing and amount requirements).
3. Contribution Requirements
To reflect the minimum contribution percentage requirements of
section 414A(b)(3), the proposed regulation would provide that an EACA
satisfies the automatic enrollment requirements of section 414A only if
the default election made on behalf of an employee under the EACA is
equal to a uniform percentage of the employee's compensation that is
subject to a cash or deferred election or salary reduction arrangement
under the plan. The default election would not apply if the employee
affirmatively elects to have contributions made in a different amount
on the employee's behalf (in a specified amount or percentage of
compensation) or not have any contributions made on the employee's
behalf, under a cash or deferred election or a salary reduction
agreement.
In accordance with section 414A(b)(3)(A)(i), the proposed
regulation would provide that the contribution percentage under the
default election for each employee's initial period must be a uniform
percentage that is not less than 3 percent and not more than 10
percent. The proposed regulation would clarify that an employee's
initial period (that is, the employee's ``first year of participation''
under section 414A(b)(3)(A)(i)) would begin when the employee is first
eligible to elect to have contributions made on the employee's behalf
under the plan (or if later, when the plan is first required to satisfy
the automatic enrollment requirements of section 414A), and the
employee's initial period would end on the last day of the following
plan year.
As described in section II.A of the Background portion of this
preamble, section 414A(b)(3)(A)(ii) generally requires automatic
increases of one percentage point to an employee's minimum default
contribution percentage for each plan year beginning after each
completed year of participation under the EACA, up to a maximum default
contribution percentage of at least 10 percent (but not more than 15
percent). The proposed regulation would provide that, for each plan
year beginning after an employee's initial period, the percentage
contribution under the default election must be increased by one
percentage point until the percentage is at least 10 percent. The
proposed regulation also would provide that the percentage may not
exceed 15 percent (or the lower percentage specified in section
414A(b)(3)(B), if applicable).
For purposes of satisfying the uniform percentage requirement of
section 414A(b)(3)(A), the proposed regulation would adopt the
exceptions from the uniform percentage requirement of section
414(w)(3)(B), which are based on the similar exceptions from the
uniform percentage requirement for a QACA under Sec. 1.401(k)-
3(j)(2)(iii). Specifically, the proposed regulation would clarify that
an EACA does not fail to satisfy the uniform percentage requirement
merely because: (1) the percentage used for the default election varies
based on the number of years (or portions of years) since the beginning
of the initial period for an employee, (2) the rate of contributions
under a cash or deferred election or salary reduction agreement that is
in effect for an employee immediately prior to the date that the
default election under the proposed regulation first applies to the
employee is not reduced, (3) the rate of contributions under a cash or
deferred election or salary reduction agreement is limited so as not to
exceed certain applicable limits under the Code, or (4) the default
election is not applied during the period an employee is not permitted
to have contributions made on the employee's behalf under a cash or
deferred election or salary reduction agreement under section
414(u)(12)(B)(ii), which provides for a six-month suspension of
elective deferrals (and employee contributions) if an individual elects
to receive a distribution by reason of the individual being treated as
having been severed from employment while performing military service.
The proposed regulation would provide rules, based on the rules for
a QACA under Sec. 1.401(k)-3(j)(2)(iv), that would address the default
percentage that would apply for an employee who did not have default
elective contributions made for an entire plan year. The proposed
regulation would provide different rules that could be used depending
on whether the employee was not eligible to have contributions made on
the employee's behalf under a CODA or salary reduction agreement or had
made an affirmative election to have contributions made in a different
amount (including an election not to have contributions made).
Specifically, the proposed regulation would permit a plan to
provide that if, after an employee's initial period began, the employee
did not have default elective contributions made for an entire plan
year, then the employee's initial period is redetermined. If no default
elective contributions were made solely because the employee was not
eligible to elect to have contributions made on the employee's behalf
under a cash or deferred election or salary reduction agreement for
that entire plan year, then a plan would be permitted to provide that
the employee's initial period would be redetermined so that it begins
on the date the employee is again eligible to elect to have
contributions made on the employee's behalf under the plan. An employer
would likely adopt this provision to determine the default contribution
rate that applies to an employee who was rehired more than one plan
year after the employee terminated employment.
However, if no default elective contributions were made solely
because the employee made an affirmative election to have contributions
made on the employee's behalf under a cash or deferred election or
salary reduction agreement in a different amount (including an election
not to have contributions made), then a plan would be permitted to
provide that the employee's initial period would be redetermined so
that it begins on any date specified under the plan that is later than
the date the employee's original initial period ended. For example, a
plan is permitted to be amended to provide that, as of a specific date,
the default election will apply to all employees who previously made an
affirmative election that has been in effect for a period of at least
one plan year to have contributions made on behalf of the employees
under the plan at a rate that is below the uniform percentage that
applies during an initial period (so that the uniform percentage that
applies during the initial period will apply unless the employee makes
a new affirmative election). An employer might adopt such an amendment
to facilitate an increase in the rate of
[[Page 3098]]
contributions made on behalf of its employees.
4. Investment Requirements
In accordance with the investment requirements of section
414A(b)(4), the proposed regulation would provide that an EACA
satisfies the automatic enrollment requirements of section 414A only if
amounts contributed pursuant to the EACA, and for which no investment
is elected by the employee, are invested in accordance with the
requirements of 29 CFR 2550.404c-5 (or any successor regulations).
C. Exceptions for Certain Types of Plans and Businesses
1. SIMPLE 401(k) Plans
In accordance with section 414A(c)(1), the proposed regulation
would provide that the automatic enrollment requirements of section
414A do not apply to any SIMPLE 401(k) plan (as described in section
401(k)(11) and Sec. 1.401(k)-4).
2. Governmental and Church Plans
In accordance with section 414A(c)(3), the proposed regulation
would provide that the automatic enrollment requirements of section
414A do not apply to any governmental plan (within the meaning of
section 414(d)) or any church plan (within the meaning of section
414(e)).
3. New and Small Businesses
Section 414A(c)(4)(A) provides that the automatic enrollment
requirements of section 414A(a) do not apply to any qualified CODA, or
any annuity contract purchased under a plan, while the employer
maintaining the plan (and any predecessor employer) has been in
existence for less than 3 years. However, section 414A does not specify
the date as of which a plan must satisfy the automatic enrollment
requirements of section 414A(b) if the exception for new businesses
under section 414A(c)(4)(A) ceases to apply to the plan.
In response to Notice 2024-2, the Treasury Department and the IRS
received a comment requesting clarification that a plan will not fail
to satisfy the automatic enrollment requirements of section 414A(b) if
the plan includes an EACA no later than the first plan year that begins
on or after the third anniversary of the employer's existence. The
Treasury Department and the IRS agree that a plan should not be
required to implement an EACA in the middle of a plan year. Therefore,
the proposed regulation would clarify that the automatic enrollment
requirements of section 414A do not apply to a plan for a plan year if,
as of the beginning of the plan year, the employer maintaining the plan
(aggregated with any predecessor employer) has been in existence for
less than 3 years.
Section 414A(c)(4)(B) provides that the automatic enrollment
requirements of section 414A(a) do not apply to any qualified CODA, or
any annuity contract purchased under a plan, earlier than the date that
is 1 year after the close of the first taxable year of the employer
maintaining the plan with respect to which that employer normally
employed more than 10 employees. However, section 414A(c)(4)(B) does
not specify any method for counting the number of employees for this
purpose.
In response to Notice 2024-2, the Treasury Department and the IRS
received comments requesting clarification regarding the method for
counting employees for purposes of the small business exception under
section 414A(c)(4)(B). One commenter raised the issue of how to count
employees for this purpose but did not suggest a specific method.
Another commenter recommended that the Treasury Department and the IRS
adopt a monthly averaging approach, which the commenter explained would
be similar to the approach used for purposes of section 4980H. However,
section 4980H does not use the phrase ``normally employed''; instead,
that phrase is used in section 4980B(d)(1). Therefore, the proposed
regulation would clarify that the number of employees that the employer
normally employs for a taxable year is determined using the rules of
Q&A-5 of Sec. 54.4980B-2.
Similar to the clarification provided in the proposed regulation
for new businesses, the proposed regulation would clarify that the
automatic enrollment requirements of section 414A do not apply to any
qualified CODA, or any annuity contract purchased under a section
403(b) plan, before the first plan year that begins at least 12 months
after the close of the first taxable year of the employer maintaining
the plan with respect to which that employer normally employed more
than 10 employees.
As described in section II.A of the Background portion of this
preamble, section 414A(c)(4)(C) provides special rules for the new and
small business exceptions in the case of ``a plan maintained by more
than 1 employer.'' The proposed regulation would clarify that the
phrase ``a plan maintained by more than 1 employer'' means a multiple
employer plan.\9\ Accordingly, the proposed regulation would reflect
the provisions of section 414A(c)(4)(C) by providing that, in the case
of a multiple employer plan, the exceptions for new and small
businesses apply on an employer-by-employer basis. Thus, if an employer
participating in a multiple employer plan is a new or small business,
it would be exempt from the automatic enrollment requirements of
section 414A, but that exemption would have no impact on whether
section 414A applies to the employees of the other participating
employers.
---------------------------------------------------------------------------
\9\ This interpretation is consistent with the heading of
section 414A(c)(4)(C) (``Treatment of multiple employer plans'') and
the interpretation in Sec. 1.413-2(a)(2) and (3) of the
substantially identical language in section 413(c) (``a plan
maintained by more than one employer'').
---------------------------------------------------------------------------
D. Exceptions for Plans Established Before the Enactment of Section
414A
1. In General
As described in section II.A of the Background portion of this
preamble, section 414A(c)(2)(A) provides an exception from the
requirements of section 414A(a) in the case of a qualified CODA, or
section 403(b) plan, that is established before December 29, 2022, and
Q&A A-1 and Q&A A-5 of Notice 2024-2 provide guidance with respect to
the date that a qualified CODA or section 403(b) plan is established
for purposes of section 414A(c)(2)(A). Notice 2024-2 refers to a
qualified CODA or section 403(b) plan that is eligible for the
exception under section 414A(c)(2)(A) as a pre-enactment qualified CODA
or pre-enactment section 403(b) plan, and this Explanation of
Provisions uses the term pre-enactment plan to encompass both pre-
enactment qualified CODAs and pre-enactment section 403(b) plans.
The proposed regulation would reflect the provisions of section
414A(c)(2)(A)(i) and incorporate the guidance provided in Q&A A-1 of
Notice 2024-2 by generally providing that the automatic enrollment
requirements of section 414A do not apply to any plan that includes a
qualified CODA if the plan terms providing for the qualified CODA were
adopted initially before December 29, 2022, even if the plan terms
providing for the CODA are effective after that date. The proposed
regulation also would reflect the provisions of section
414A(c)(2)(A)(ii) and incorporate the guidance provided in Q&A A-5 of
Notice 2024-2 by providing that the automatic enrollment requirements
of section 414A do not apply to any section 403(b) plan adopted
initially before December 29, 2022, without regard to the date of
adoption of plan terms providing for salary reduction agreements.
[[Page 3099]]
2. Merger of Plans Established Before the Enactment of Section 414A
With respect to the merger of two pre-enactment plans (neither of
which is a multiple employer plan) or the merger of a pre-enactment
plan that is not a multiple employer plan with a pre-enactment multiple
employer plan, the proposed regulation would incorporate the guidance
provided in Q&A A-2 of Notice 2024-2 (which, under Q&A A-5 of Notice
2024-2, also applies to section 403(b) plans). Thus, the plan after the
merger will be treated as a pre-enactment plan.
The proposed regulation generally would extend the guidance
provided in Q&A A-2 of Notice 2024-2 to the merger of two pre-enactment
multiple employer plans. However, the proposed regulation would clarify
that a merger involving a multiple employer plan will not affect
whether the merged plan is treated as a pre-enactment plan with respect
to any employer that maintained the multiple employer plan prior to the
merger.
3. Merger of Plan Established on or After the Enactment of Section 414A
With a Plan Established Before the Enactment of Section 414A
With respect to the merger of a plan that is not a pre-enactment
plan and a pre-enactment plan (neither of which is a multiple employer
plan), the proposed regulation generally would incorporate the guidance
provided in Q&A A-3 of Notice 2024-2 (which, under Q&A A-5 of Notice
2024-2, also applies to section 403(b) plans). With respect to the
guidance provided in Q&A A-3 of Notice 2024-2 regarding a plan merger
in connection with a transaction described in section 410(b)(6)(C), the
proposed regulation generally would incorporate that guidance by
providing that a pre-enactment plan will continue to be treated as a
pre-enactment plan after a merger with a plan that is not a pre-
enactment plan if there is a transaction described in Sec. 1.410(b)-
2(f), the pre-merger pre-enactment plan is designated as the ongoing
plan, and the plan merger occurs within the transition period described
in section 410(b)(6)(C)(ii). In addition, the proposed regulation would
expand the rule in Q&A A-3 of Notice 2024-2 to address certain
situations in which a plan maintained by a single employer that is not
a pre-enactment plan is merged into a multiple employer plan. Under
this expansion, the multiple employer plan would be treated as a pre-
enactment plan with respect to the employer that sponsored the merged-
in plan if, with respect to the participating employer that engaged in
the transaction, the multiple employer plan was treated as a pre-
enactment plan before the transaction. As is the case of any merger
involving a multiple employer plan, the merger would not affect whether
the multiple employer plan is treated as a pre-enactment plan with
respect to any other employer.
Under section 410(b)(6)(C)(ii), the transition period begins on the
date of the change in members of a controlled group (as described in
section 414(b), (c), (m), or (o)) and ends on the last day of the first
plan year beginning after the date of that change. In response to
Notice 2024-2, one commenter requested that the guidance provided in
Q&A A-3 be modified to extend the time period for a plan merger until
the end of the first plan year that begins after the end of the section
410(b)(6)(C) transition period. The proposed regulation would not
extend the time period set forth in Q&A A-3 of Notice 2024-2 because
that is the time period specified in the Code for an employer to
implement changes to its plans that may be needed following a
transaction described in section 410(b)(6)(C).
With respect to a merger of a multiple employer plan that is a pre-
enactment plan with a multiple employer plan that is not a pre-
enactment plan, the proposed regulation would clarify the guidance
provided in Q&A A-3 of Notice 2024-2 by providing that the merger will
not affect whether the merged plan is treated as a pre-enactment plan
with respect to any employer that maintained either multiple employer
plan prior to the merger.
4. Treatment of Adoption of, or Merger With, a Multiple Employer Plan
As described in section II.A of the Background portion of this
preamble, section 414A(c)(2)(B) provides special rules that apply in
the case of an employer that adopts, after December 29, 2022, a plan
maintained by more than one employer. Consistent with the
interpretation of the statutory phrase ``a plan maintained by more than
1 employer'' in section 414A(c)(4)(C), as described in section I.C.3 of
this Explanation of Provisions, the proposed regulation would clarify
that the phrase ``a plan maintained by more than one employer'' in
section 414A(c)(2)(B) means a multiple employer plan. Thus, the
proposed regulation would provide that if an employer adopts a multiple
employer plan after December 29, 2022, then, with respect to that
employer, the multiple employer plan will not be treated as a pre-
enactment plan. However, this treatment would not affect employers who
adopted the multiple employer plan on or before December 29, 2022.
With respect to the merger of a plan (other than a multiple
employer plan) with a multiple employer plan after December 29, 2022,
the proposed regulation generally would incorporate the guidance
provided in Q&A A-2 and Q&A A-3 of Notice 2024-2 (which, under Q&A A-5
of Notice 2024-2, also applies to section 403(b) plans). Thus, for
example, if an employer merged a plan that was not a pre-enactment plan
into a pre-enactment multiple employer plan after December 29, 2022,
the multiple employer plan generally would not be treated as a pre-
enactment plan with respect to that employer after the merger.
In response to Notice 2024-2, the Treasury Department and the IRS
received a number of comments expressing concern that, in the case of
an employer maintaining a pre-enactment plan that is merged into a
multiple employer plan that was established after December 29, 2022,
the multiple employer plan would not be treated as a pre-enactment plan
with respect to that employer after the merger. The comments requested
guidance providing that if a pre-enactment plan is merged into a
multiple employer plan, then the merged-in plan does not lose its pre-
enactment status with respect to the employer that maintained the
merged-in plan regardless of whether the multiple employer plan was
established before or after December 29, 2022. In response to these
comments, the proposed regulation would provide that, if an employer
maintains a pre-enactment plan that is merged into a multiple employer
plan after December 29, 2022, then the post-merger multiple employer
plan will be treated as a pre-enactment plan with respect to that
employer. This rule would apply regardless of the date of establishment
of the multiple employer plan.
The proposed regulation also would clarify that the special rule
set forth in section 414A(c)(2)(B) regarding the adoption of a multiple
employer plan after December 29, 2022, applies on an employer-by-
employer basis. Thus, under the proposed regulation, neither an
employer's adoption of a multiple employer plan nor a merger of an
employer's plan into a multiple employer plan after December 29, 2022,
would affect whether the multiple employer plan is treated as a pre-
enactment plan with respect to any other employer maintaining the plan.
[[Page 3100]]
5. Plan Spin-Off
The proposed regulation would incorporate the guidance provided in
Q&A A-4 of Notice 2024-2 by providing that if a portion of a pre-
enactment plan is spun off from that plan, the resulting spun-off plan
will be treated as a pre-enactment plan if either the plan from which
the spin-off occurred was not a multiple employer plan, or the plan
from which the spin-off occurred was a multiple employer plan that was
treated as a pre-enactment plan with respect to the employer
maintaining the spun-off plan.
6. Other Plan Amendments
In response to Notice 2024-2, the Treasury Department and the IRS
received comments requesting guidance on whether changes to a plan's
design or other plan amendments would affect the date the plan was
established for purposes of section 414A(c)(2)(A). In response to these
comments, the proposed regulation would clarify that a plan will not
fail to be a pre-enactment plan merely because the plan is amended,
provided that the amendment is not an amendment relating to an adoption
of a multiple employer plan or a plan merger. This rule would apply
even if the plan amendment expands eligibility to participate in the
CODA (or to enter into a salary reduction agreement) to other employees
of the employer that maintains the plan or to employees of another
employer in the employer's controlled group. The proposed regulation
also would clarify that if a pre-enactment plan is merged with a plan
that does not include a CODA or permit any salary reduction agreements,
then the merged plan will continue to be a pre-enactment plan after the
merger.
In response to Notice 2024-2, the Treasury Department and the IRS
also received comments requesting guidance on whether a change in a
plan's service provider would affect the date the plan was established
for purposes of section 414A(c)(2)(A). Generally, a mere change in a
plan's recordkeeper would not necessitate an amendment to the plan.
However, if a plan's change of recordkeeper or any similar change
required a plan amendment that does not relate to the adoption of a
multiple employer plan or a plan merger, then, under the proposed
regulation, the amendment would not cause the plan to fail to be a pre-
enactment plan.
E. Applicability Date
1. Statutory Applicability Date
In accordance with section 101(c) of the SECURE 2.0 Act, the
proposed regulation would provide that section 414A applies to plan
years beginning after December 31, 2024.
2. Regulatory Applicability Date
The proposed regulation would apply to plan years that begin more
than 6 months after the date that final regulations under section 414A
are issued. For earlier plan years, a plan would be treated as having
complied with section 414A if the plan complies with a reasonable, good
faith interpretation of section 414A.
As explained in section I.B.1 of this Explanation of Provisions,
the proposed regulation would require an EACA to cover all employees in
the plan who are eligible to elect to have contributions made on their
behalf for the automatic enrollment requirements of the proposed
regulation to be satisfied. If a CODA or section 403(b) plan that
provides for salary reduction agreements becomes subject to the
requirements of section 414A(a) as of the first day of the plan year
beginning after December 31, 2024 (2025 plan year), but employees who
became eligible to participate in the CODA or to enter into a salary
reduction agreement before the first day of the 2025 plan year (and who
do not have affirmative elections in effect on that date) are not
covered under the EACA, then those employees would have to be covered
under the EACA on the first day of the first plan year that the final
regulations apply to the CODA or to the section 403(b) plan that
provides for salary reduction agreements (first applicable plan year).
As a result, under the proposed regulation, unless employees who
became eligible to participate in the CODA or to enter into a salary
reduction agreement before the first day of the 2025 plan year have
affirmative elections in effect on the first day of the first
applicable plan year, those employees would need to be automatically
enrolled as of that date in order for the requirements of the
regulation to be satisfied. In that case, the default contribution
percentage would be the percentage that would apply under the EACA for
the first applicable plan year had those employees been automatically
enrolled starting on the first day of the 2025 plan year. As an
alternative, the plan terms could reflect the provision in the proposed
regulation permitting the redetermination of the initial period in the
case of an employee who did not have default elective contributions
made for an entire plan year (so that the plan would be permitted to
provide that the initial contribution percentage that applies to those
employees is the percentage that would apply under the EACA had the
initial period for those employees started on the first day of the
first applicable plan year).
F. Other Matters
1. Multiemployer Plans
As described in section I.D.4 of this Explanation of provisions,
the proposed regulation would clarify that, for purposes of section
414A(c)(2)(B), the phrase ``a plan maintained by more than one
employer'' means ``a multiple employer plan.'' Thus, the phrase ``a
plan maintained by more than one employer'' would not be interpreted to
include a multiemployer plan or a plan maintained by members of a
controlled group. As a result, under the proposed regulation, a pre-
enactment multiemployer plan would continue to be treated as a pre-
enactment plan with respect to an employer that adopts the plan after
December 29, 2022, or with respect to an employer that maintains a plan
that is merged into the multiemployer plan after December 29, 2022
(regardless of the date the merged-in plan was established). Similarly,
a pre-enactment plan would continue to be treated as a pre-enactment
plan with respect to additional members of an employer's controlled
group if eligibility to participate in the plan is expanded to include
employees of those employers after December 29, 2022.
2. PLESAs
The Department of Labor published a request for information
soliciting public feedback on several sections of the SECURE 2.0 Act in
the Federal Register (88 FR 54511). In response to comments received,
this preamble addresses the interaction of the rules for a PLESA and
the automatic enrollment requirements of section 414A.
If a plan with a qualified CODA includes a PLESA, then the PLESA is
part of the CODA. Thus, an affirmative election to contribute to a
PLESA is an affirmative election to contribute to the CODA. If the plan
is subject to the automatic enrollment requirements of section 414A,
then an affirmative election to contribute to a PLESA would be an
affirmative election under the CODA for purposes of the proposed
regulation.
If an employee is automatically enrolled to contribute to a PLESA,
the investment requirements of section 414A(b)(4) and proposed Sec.
1.414A-1(c)(4) (which reference the Department of Labor's rules for
qualified default investment alternatives under 29 CFR 2550.404c-5)
generally would not be
[[Page 3101]]
satisfied with respect to the automatic contributions to the PLESA.\10\
Thus, automatic contributions to the PLESA would not be able to be used
to satisfy the automatic enrollment requirements under section 414A.
---------------------------------------------------------------------------
\10\ The Department of Labor published frequently asked
questions online providing general compliance information under
ERISA regarding PLESAs providing that, generally, the investment
option designated for PLESAs cannot be the same as a plan's
qualified default investment alternative under 29 CFR 2550.404c-
5(e)(4)(i). However, Q&A-15 does indicate that a PLESA's investment
option could meet the requirements for a qualified default
investment alternative for a short period of time.
---------------------------------------------------------------------------
II. Section 1.414(w)-1
A. Employees Covered by the EACA
As explained in section I.B.1 of this Explanation of Provisions,
proposed Sec. 1.414A-1 would clarify that, in order for a CODA or
salary reduction agreement under section 403(b) to satisfy the
automatic enrollment requirements of section 414A, all employees in the
plan who are eligible to elect to have contributions made on their
behalf under the CODA or pursuant to a salary reduction agreement must
be covered by the EACA. Section 1.414(w)-1(b)(1) currently provides
that an EACA need not cover all employees who are eligible to elect to
have contributions made on their behalf under the applicable employer
plan. For consistency with proposed Sec. 1.414A-1, this notice of
proposed rulemaking would amend Sec. 1.414(w)-1(b)(1) to clarify that
the section 414A requirement to be covered by an EACA overrides the
existing rule in the EACA regulations.
B. Special Rules Relating to Notices
1. Unenrolled Participants
As described in section II.B of the Background portion of this
preamble, section 320 of the SECURE 2.0 Act adds new section 414(bb) to
the Code. This notice of proposed rulemaking would reflect section
414(bb) by amending Sec. 1.414(w)-1 to add a new paragraph under
which, if the requirements of section 414(bb)(1) are satisfied with
respect to an unenrolled participant (as defined in section
414(bb)(2)),\11\ then the requirement to give the section 414(w)(4)
notice of an employee's rights and obligations does not apply to the
participant. Thus, an unenrolled participant does not need to be given
the annual EACA notice, provided that the participant is furnished (1)
annual reminder notices under section 414(bb)(1)(A), and (2) any
document requested by the participant (if the participant would be
entitled to receive the document in the absence of section 414(bb) and
section 111 of ERISA).
---------------------------------------------------------------------------
\11\ Section 414(bb)(2) defines an unenrolled participant as an
employee who: (1) is eligible to participate in a defined
contribution plan, (2) has been furnished the summary plan
description pursuant to section 104(b) of ERISA for the plan and any
other notices related to eligibility under the plan and required to
be furnished under the Code or ERISA in connection with the
participant's initial eligibility to participate in the plan, (3) is
not participating in the defined contribution plan, and (4)
satisfies any other criteria as the Secretary of the Treasury may
determine appropriate, as prescribed in guidance issued in
consultation with the Secretary of Labor.
---------------------------------------------------------------------------
2. Consolidation of Notices
As described in section II.B of the Background portion of this
preamble, section 402A(e)(5)(C) of the Code (as added by section 127 of
the SECURE 2.0 Act) permits the initial and annual notices required
under section 402A(e)(5)(A) of the Code to be included with any other
notice under ERISA, including under section 404(c)(5)(B) or 514(e)(3)
of ERISA, or under section 401(k)(13)(E) or 414(w)(4) of the Code, if
the other notice is provided to the participant at the time required
for that notice. In addition, section 341 of the SECURE 2.0 Act permits
a plan to consolidate two or more of the notices required under
sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections
401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code into a single
notice, provided that the combined notice satisfies certain
requirements.
The proposed amendment to Sec. 1.414(w)-1 would address section
402A(e)(5)(C) of the Code and section 341 of the SECURE 2.0 Act by
adding a new paragraph that provides that the EACA notice required
under Sec. 1.414(w)-1(b)(3) generally may be combined with one or more
of the notices required under section 404(c)(5)(B), 514(e)(3), or
801(d)(3)(A) of ERISA and section 401(k)(12)(D) or 401(k)(13)(E) of the
Code. Consistent with section 341 of the SECURE 2.0 Act, the proposed
regulation would require that the combined notice include the required
content, clearly identify the issues addressed therein, be furnished at
the time and with the frequency required for each notice, be presented
in a manner that is reasonably calculated to be understood by the
average plan participant, and not obscure or fail to highlight the
primary information required for each notice.
Proposed Applicability Date
Section 1.414A-1 and the amendments to Sec. 1.414(w)-1 are
proposed to apply to plan years that begin more than 6 months after the
date that final regulations under section 414A are issued. For a plan
year beginning after December 31, 2024, but before the applicability
date of those final regulations, a plan is treated as having complied
with section 414A if the plan complies with a reasonable, good faith
interpretation of section 414A.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
requires that a Federal agency obtain the approval of the Office of
Management and Budget (OMB) before collecting information from the
public, whether such collection of information is mandatory, voluntary,
or required to obtain or retain a benefit. A Federal agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection of information displays
a valid control number.
The collections of information in these proposed regulations
contain third-party disclosure requirements that are necessary to
comply with the statutory requirement under section 414A of the Code
(which requires certain CODAs or salary reduction agreements to be
EACAs) and that are necessary if a plan applies section 414(bb) (which
eliminates certain disclosure and notice requirements for unenrolled
participants if an annual notice is provided to the unenrolled
participants). These collections of information generally would be
provided by businesses or other for-profit institutions, nonprofit
institutions, organizations, and state or local governments that
sponsor retirement plans that include EACAs to individuals in order to
meet the statutory notice requirements for EACAs under section
414(w)(4).
The collection of information under proposed Sec. 1.414(w)-1(b)(4)
related to unenrolled participants is required in order for a plan to
apply section 414(bb). Section 414(bb) provides that no disclosure,
notice, or other plan document is required to be furnished under the
Code to an unenrolled participant if the unenrolled participant is
furnished an annual reminder notice of the unenrolled participant's
[[Page 3102]]
eligibility to participate in the plan and any applicable election
deadlines under the plan. In accordance with section 414(bb), the
proposed regulation would allow unenrolled participants to be furnished
an annual reminder notice instead of the annual notice required for
EACAs under section 414(w)(4) and Sec. 1.414(w)-1(b)(3). The burden is
as follows:
Estimated number of respondents: 90,000-140,000 plans.
Estimated frequency of responses: Varies *.
* The notice would only need to be furnished to unenrolled
participants once per year, however, plans have multiple unenrolled
participants within a given year. For calculation purposes, IRS is
estimating that each employer plan has 35 unenrolled participants
that could receive the annual notice.
Estimated average annual burden per respondent: 1 hour*, to draft
the notice and provide it to unenrolled participants.
* The IRS estimates that the reporting burden per response would
not be burdensome because the notice does not need to be customized
per participant.
Estimated total annual reporting burden: 90,000-140,000 hours.
The collections of information in these proposed regulations also
contain third-party disclosure requirements that are necessary to
comply with the statutory rule under section 414A, which requires
certain CODAs and salary reduction agreements to be EACAs (as defined
in section 414(w)(3)). Under Sec. 1.414(w)-1(b)(3), initial and annual
written notices must be given to each employee to whom the EACA applies
of the employee's rights and obligations under the EACA. Proposed Sec.
1.414A-1 would not change the notice requirements for an EACA under
Sec. 1.414(w)-1 but would subject certain CODAs and salary reduction
agreements to the notice requirements for an EACA by requiring those
CODAs and salary reduction agreements to be EACAs (as required by
section 414A). This requirement to be an EACA would not affect pre-
enactment plans. IRS anticipates about 16,000 new plans could be
established within a given year that would not otherwise be EACAs
except for the requirements of section 414A.
Estimated number of respondents: 16,000.
Estimated frequency of responses: Varies *.
* Notice would need to be given to eligible employees once per
year. For calculation purposes, IRS is estimating that each employer
plan has 60 eligible employees that would receive the annual notice.
Estimated average annual burden per respondent: 1 hour *, to draft
the notice and provide it to eligible employees.
* The IRS estimates that the reporting burden per response would
not be burdensome because the notice does not need to be customized
per participant.
Estimated total annual reporting burden: 16,000 hours.
IRS is soliciting feedback on these third-party disclosure
requirements and their associated burden. The third-party disclosure
requirements contained in this notice of proposed rulemaking have been
submitted to OMB for review in accordance with the Paperwork Reduction
Act under OMB Control Number 1545-2135. Commenters are strongly
encouraged to submit public comments electronically. Written comments
and recommendations for the proposed information collection should be
sent to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>, with copies to the Internal
Revenue Service. Find this particular information collection by using
the search function at <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Submit
electronic submissions for the proposed information collection to the
IRS via email at <a href="/cdn-cgi/l/email-protection#6c1c1e0d420f0301010902181f2c051e1f420b031a"><span class="__cf_email__" data-cfemail="69191b08470a0604040c071d1a29001b1a470e061f">[email protected]</span></a> (indicate REG-100669-24 on the
Subject line). Comments on the collection of information should be
received by March 17, 2025. Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these proposed regulations will not have a
significant economic impact on a substantial number of small entities.
Although section 414A provides an exception from the automatic
enrollment requirements for some small entities, other small entities
that sponsor section 401(k) or 403(b) plans that are established on or
after December 29, 2022, may need to provide for automatic enrollment
in the plans and default cash or deferred or salary reduction elections
for employees who are otherwise eligible to participate in the plans.
Automatic enrollment and default elections, and the resulting
additional contributions to a plan, apply to compensation that
employees would have otherwise received and do not require additional
amounts to be paid. Section 414A does not require plans to provide for
nonelective contributions or matching contributions. Before the
enactment of section 101 of the SECURE 2.0 Act, plans were permitted,
but not required, to provide for automatic enrollment. Accordingly, any
additional recordkeeping or administrative costs resulting from the
automatic enrollment requirements that apply to certain section 401(k)
and 403(b) plans sponsored by small entities are not expected to be
significant. Therefore, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required.
The Treasury Department and the IRS invite comments on the impacts
these proposed regulations may have on small entities. Pursuant to
section 7805(f) of the Code, these proposed regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small businesses.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The proposed regulations do not propose any rule that would
include any Federal mandate that may result in expenditures by State,
local, or Tribal governments, or by the private sector, in excess of
that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. The proposed
[[Page 3103]]
regulations do not propose rules that would have federalism
implications, impose substantial direct compliance costs on State and
local governments that are not required by statute, or preempt State
law within the meaning of the Executive order. This is because section
414A, by its terms, does not apply to governmental plans.
Comments and Public Hearing
Before final regulations are adopted to implement section 414A of
the Code, or to revise the regulations under section 414(w) to reflect
changes made by sections 101, 320, and 341 of the SECURE 2.0 Act,
consideration will be given to comments regarding the notice of
proposed rulemaking that are submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES section. The Treasury Department
and the IRS request comments on all aspects of the proposed
regulations. Comments specifically are requested on whether guidance is
needed to define the term ``predecessor employer'' as used in section
414A(c)(4)(A) of the Code and on the criteria that should apply for an
individual to be an unenrolled participant under section 414(bb)(2).
All comments will be made available at <a href="http://www.regulations.gov">www.regulations.gov</a>. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn.
A public hearing has been scheduled for April 8, 2025, beginning at
10 a.m. ET in the Auditorium of the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Participants may alternatively attend the public
hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments must submit an outline of the topics to
be addressed and the time to be devoted to each topic by March 17, 2025
as prescribed in the preamble under the DATES section. A period of 10
minutes will be allocated to each person for making comments. An agenda
showing the scheduling of the speakers will be prepared after the
deadline for receiving outlines has passed. Copies of the agenda will
be available free of charge at the hearing. If no outline of the topics
to be discussed at the hearing is received by March 17, 2025, the
public hearing will be cancelled. If the public hearing is cancelled, a
notice of cancellation of the public hearing will be published in the
Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#e09095828c898388858192898e8793a0899293ce878f96"><span class="__cf_email__" data-cfemail="1b6b6e79777278737e7a6972757c685b726968357c746d">[email protected]</span></a> to have their names added
to the building access list. The subject line of the email must contain
the regulation number REG-100669-24 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-100669-24.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#720207101e1b111a1713001b1c1501321b00015c151d04"><span class="__cf_email__" data-cfemail="80f0f5e2ece9e3e8e5e1f2e9eee7f3c0e9f2f3aee7eff6">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-100669-24 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-100669-24.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#601015020c090308050112090e0713200912134e070f16"><span class="__cf_email__" data-cfemail="077772656b6e646f6266756e696074476e757429606871">[email protected]</span></a> to have
their names added to the building access list. The subject line of the
email must contain the regulation number REG-100669-24 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-100669-24. Requests to attend the
public hearing must be received by 5 p.m. ET on April 4, 2025.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#b3c3c6d1dfdad0dbd6d2c1daddd4c0f3dac1c09dd4dcc5"><span class="__cf_email__" data-cfemail="413134232d282229242033282f2632012833326f262e37">[email protected]</span></a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number REG-
100669-24 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-100669-24. Requests to attend the public hearing must be received
by 5 p.m. ET on April 4, 2025.
Hearings will be made accessible to people with disabilities. To
request special assistance during the hearing, please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#3d4d485f51545e55585c4f54535a4e7d544f4e135a524b"><span class="__cf_email__" data-cfemail="9eeeebfcf2f7fdf6fbffecf7f0f9eddef7ecedb0f9f1e8">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by April 3, 2025.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings notices, and other guidance
cited in this document are published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="http://www.irs.gov">www.irs.gov</a>.
Drafting Information
The principal authors of these proposed regulations are Christina
M. Cerasale and Kara M. Soderstrom, of the Office of the Associate
Chief Counsel (Employee Benefits, Exempt Organizations, and Employment
Taxes (EEE)). However, other personnel from the Treasury Department and
the IRS participated in the development of the proposed regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Section 1.414(w)-1 is amended by:
0
a. Revising the second sentence of paragraph (b)(1); and
0
b. Adding paragraph (b)(4).
The revision and addition read as follows:
Sec. 1.414(w)-1 Permissible withdrawals from eligible automatic
contribution arrangements.
* * * * *
(b) * * *
(1) * * * Except to the extent required under section 414A (which
applies to plan years beginning after December 31, 2024), an eligible
automatic contribution arrangement need not cover all employees who are
eligible to elect to have contributions made on their behalf under the
applicable employer plan.
* * * * *
(4) Special rules--(i) No requirement to provide notice to
unenrolled participant. If the requirements of section 414(bb)(1) are
satisfied with respect to an unenrolled participant described in
section 414(bb)(2), then the requirement to give the notice of an
employee's rights and obligations set forth in paragraph (b)(3) of this
section does not apply to the participant.
[[Page 3104]]
(ii) Consolidation of notices. The notice described in paragraph
(b)(3) of this section may be combined with one or more of the notices
required under section 404(c)(5)(B), 514(e)(3), or 801(d)(3)(A) of the
Employee Retirement Income Security Act of 1974 (Public Law 93-406, 88
Stat. 829), as amended, and any notice required under section
401(k)(12)(D) or (13)(E), provided that the combined notice--
(A) Includes the required content,
(B) Clearly identifies the issues addressed therein,
(C) Is furnished at the time and with the frequency required for
each notice,
(D) Is presented in a manner that is reasonably calculated to be
understood by the average plan participant, and
(E) Does not obscure or fail to highlight the primary information
required for each notice.
* * * * *
0
Par. 3. Section 1.414A-1 is added to read as follows:
Sec. 1.414A-1 Automatic enrollment requirements under section 414A.
(a) Overview. This section provides rules regarding the automatic
enrollment requirements under section 414A. Paragraph (b) of this
section provides that a plan that includes a qualified cash or deferred
arrangement under section 401(k) or a salary reduction agreement under
section 403(b) is required to satisfy the automatic enrollment
requirements of paragraph (c) of this section unless an exception
described in paragraph (d) of this section (for certain types of plans
and businesses) or paragraph (e) of this section (for a cash or
deferred arrangement or section 403(b) plan established before December
29, 2022) applies to the plan. The applicability date of section 414A
and the applicability date of this section are set forth in paragraph
(f) of this section.
(b) General rule--(1) Qualified cash or deferred arrangements.
Except as provided in paragraph (d) or (e) of this section, a cash or
deferred arrangement will not be treated as a qualified cash or
deferred arrangement described in Sec. 1.401(k)-1(a)(4)(i) for a plan
year unless the plan that includes the arrangement provides that any
cash or deferred election under the arrangement must satisfy the
automatic enrollment requirements of paragraph (c) of this section.
(2) Section 403(b) plans with salary reduction agreements. Except
as provided in paragraph (d) or (e) of this section, an annuity
contract described in section 403(b) that is purchased pursuant to a
salary reduction agreement described in Sec. 31.3121(a)(5)-2(a)(1)
(that is, an election to reduce compensation pursuant to a cash or
deferred election as defined in Sec. 1.401(k)-1(a)(3)) will not be
treated as purchased under a section 403(b) plan for a plan year unless
the plan provides that any salary reduction agreement under the plan
must satisfy the automatic enrollment requirements of paragraph (c) of
this section.
(c) Automatic enrollment requirements--(1) In general--(i)
Arrangement must be an eligible automatic contribution arrangement. A
cash or deferred arrangement or salary reduction agreement under a plan
satisfies the automatic enrollment requirements of this paragraph (c)
only if the plan provides for an eligible automatic contribution
arrangement (as defined in section 414(w)(3)) that--
(A) Covers the employees described in paragraph (c)(1)(ii) of this
section, and
(B) Satisfies the additional requirements of paragraphs (c)(2)
through (4) of this section.
(ii) Employees covered under the eligible automatic contribution
arrangement. The employees who must be covered by the eligible
automatic contribution arrangement are all employees in the plan who
are eligible to elect to have contributions made on their behalf under
a cash or deferred arrangement or pursuant to a salary reduction
agreement.
(iii) Exception to default election for employees with an
affirmative election. An eligible automatic contribution arrangement
will not fail to satisfy the requirements of this paragraph (c) merely
because the default election under the arrangement does not apply to an
employee who, on the date paragraph (b) of this section first applies
to the plan that includes the cash or deferred arrangement or salary
reduction agreement, had an affirmative election in effect (that
remains in effect) to--
(A) Have contributions made on the employee's behalf under a cash
or deferred election or a salary reduction agreement (in a specified
amount or percentage of compensation); or
(B) Not have contributions made on the employee's behalf under a
cash or deferred election or a salary reduction agreement.
(2) Arrangement must permit permissive withdrawals. An eligible
automatic contribution arrangement satisfies the requirements of this
paragraph (c)(2) only if the plan that includes the arrangement
provides that any employee who has default elective contributions made
under the arrangement may elect to make a permissible withdrawal (as
defined in section 414(w)(2) and described in Sec. 1.414(w)-1(c)).
(3) Contribution requirements--(i) Default election. An eligible
automatic contribution arrangement under a plan satisfies the
requirements of this paragraph (c)(3) only if, under the arrangement,
the default election made on behalf of an employee is equal to a
uniform percentage, as described in paragraph (c)(3)(ii) of this
section, of the employee's compensation that is subject to a cash or
deferred election or salary reduction arrangement under the plan,
unless the employee affirmatively elects to--
(A) Have contributions made in a different amount on the employee's
behalf under a cash or deferred election or a salary reduction
agreement (in a specified amount or percentage of compensation); or
(B) Not have contributions made on the employee's behalf under a
cash or deferred election or a salary reduction agreement.
(ii) Uniform percentage--(A) Initial period--(1) Initial
percentage. The contribution percentage under the default election for
each employee's initial period must be a uniform percentage that is not
less than 3 percent and not more than 10 percent.
(2) Beginning of initial period. An employee's initial period
begins when the employee is first eligible to elect to have
contributions made on the employee's behalf under the plan (or if
later, when section 414A first applies to the plan).
(3) End of initial period. The employee's initial period ends on
the last day of the plan year that follows the plan year that includes
the date the initial period begins.
(B) Subsequent plan years. For each plan year beginning after an
employee's initial period under the arrangement, the percentage
contribution under the default election must be increased by 1
percentage point until the percentage is at least 10 percent. However,
the percentage may not exceed 15 percent (or the lower percentage
specified in section 414A(b)(3)(B), if applicable).
(iii) Exception to uniform percentage requirement. An eligible
automatic contribution arrangement does not fail to satisfy the uniform
percentage requirement of paragraph (c)(3)(ii) of this section merely
because--
(A) The percentage used for the default election varies based on
the number of years (or portions of years) since the beginning of the
initial period for an employee;
(B) The rate of contributions under a cash or deferred election or
salary reduction agreement that is in effect for
[[Page 3105]]
an employee immediately prior to the date that the default election
under paragraph (c) of this section first applies to the employee is
not reduced;
(C) The rate of contributions under a cash or deferred election or
salary reduction agreement is limited so as not to exceed the
applicable limits of sections 401(a)(17), 401(k)(16), 402(g)
(determined with or without catch-up contributions), 403(b)(16), and
415; or
(D) The default election provided under paragraph (c)(3)(i) of this
section is not applied during the period an employee is not permitted
to have contributions made on the employee's behalf under a cash or
deferred election or salary reduction agreement in order for the plan
to satisfy the requirements of section 414(u)(12)(B)(ii).
(iv) Treatment of periods without default contributions--(A)
Permissive redetermination of initial period in certain situations. The
uniform percentages described in paragraph (c)(3)(ii) of this section
are based on the date an employee's initial period begins. However, if,
after the employee's initial period began, the employee did not have
default elective contributions made for an entire plan year, then the
plan is permitted to provide that the employee's initial period is
redetermined as described in paragraph (c)(3)(iv)(B) or (C) of this
section.
(B) Redetermination for employee who became ineligible. If, for an
entire plan year, no default elective contributions were made solely
because the employee was not eligible to elect to have contributions
made on the employee's behalf under a cash or deferred election or
salary reduction agreement for that plan year, then the plan is
permitted to provide that the employee's initial period is redetermined
so that it begins on the date the employee is again eligible to elect
to have contributions made on the employee's behalf under the plan.
(C) Redetermination for employee who remained eligible and made an
affirmative election. If, for an entire plan year, no default elective
contributions were made solely because the employee made an affirmative
election to have contributions made on the employee's behalf under a
cash or deferred election or salary reduction agreement in a different
amount (including an election not to have contributions made), then the
plan is permitted to provide that the initial period is redetermined so
that it begins on any date specified under the plan that is later than
the date specified in paragraph (c)(3)(ii)(A)(3) of this section.
(4) Investment requirements. An eligible automatic contribution
arrangement satisfies the requirements of this paragraph (c)(4) only if
amounts contributed pursuant to the arrangement, and for which no
investment is elected by the employee, are invested in accordance with
the requirements of 29 CFR 2550.404c-5 (or any successor regulations).
(d) Exceptions for certain types of plans and businesses--(1)
SIMPLE 401(k) plans. Paragraph (b) of this section does not apply to
any SIMPLE 401(k) plan (as described in section 401(k)(11) and Sec.
1.401(k)-4).
(2) Governmental plans. Paragraph (b) of this section does not
apply to any governmental plan (within the meaning of section 414(d)).
(3) Church plans. Paragraph (b) of this section does not apply to
any church plan (within the meaning of section 414(e)).
(4) New and small businesses--(i) New businesses. Paragraph (b) of
this section does not apply to any qualified cash or deferred
arrangement, or any annuity contract purchased under a section 403(b)
plan, for a plan year if, as of the beginning of the plan year, the
employer maintaining the plan (aggregated with any predecessor
employer) has been in existence for less than 3 years.
(ii) Small businesses. Paragraph (b) of this section does not apply
to any qualified cash or deferred arrangement, or any annuity contract
purchased under a section 403(b) plan, before the first plan year that
begins at least 12 months after the close of the first taxable year of
the employer maintaining the plan with respect to which that employer
normally employed more than 10 employees. For this purpose, the number
of employees that the employer normally employs for a taxable year is
determined using the rules of Q&A-5 of Sec. 54.4980B-2 of this
chapter.
(iii) Applicability to multiple employer plans. In the case of a
multiple employer plan, the exceptions provided in paragraphs (d)(4)(i)
and (ii) of this section apply on an employer-by-employer basis.
(iv) Example--(A) Facts. Employer Q has been in existence since
July 1, 2026, and does not have a predecessor employer. Employer Q
maintains Plan X, which has a plan year that is the calendar year and
includes a cash or deferred arrangement. Plan X was effective on
January 1, 2027, and provides that a cash or deferred election must be
an affirmative election. Employee M, who became eligible to elect to
have contributions made on Employee M's behalf under Plan X on January
1, 2027, made an affirmative election not to have elective
contributions made on Employee M's behalf and that affirmative election
is in effect on January 1, 2030. Employee N, who also became eligible
to elect to have contributions made on Employee N's behalf under Plan X
on January 1, 2027, has not made any election to have (or not have)
contributions made on Employee N's behalf under Plan X. Effective
January 1, 2030, Plan X is amended to include an eligible automatic
contribution arrangement that satisfies the requirements of paragraphs
(c)(2) through (4) of this section. The amendment provides that an
employee who has a cash or deferred election that is an affirmative
election and is in effect on January 1, 2030, is not subject to the
default election under the eligible automatic contribution arrangement
that is included in Plan X.
(B) Analysis and Conclusion. Because the exception for new
businesses set forth in paragraph (d)(4)(i) of this section ceases to
apply to Plan X for plan years beginning on or after January 1, 2030,
paragraph (b) of this section first applies to Plan X as of that date.
Pursuant to paragraph (c)(1)(iii) of this section, the eligible
automatic contribution arrangement required to be included in Plan X
for plan years beginning on January 1, 2030, does not fail to satisfy
the requirements of paragraph (c) of this section merely because the
default election under the arrangement does not apply to Employee M as
a result of Employee M's affirmative election. However, Plan X does not
satisfy the requirements of section 414A unless the default election in
paragraph (c)(3) of this section applies to Employee N because of the
absence of an affirmative election made by Employee N to have elective
contributions made on Employee N's behalf in a different amount (or to
not have elective contributions made on Employee N's behalf).
(e) Exception for plans established before the enactment of section
414A--(1) In general. Subject to the rules of application in paragraphs
(e)(2) through (6) of this section, paragraph (b) of this section does
not apply to--
(i) Any plan that includes a qualified cash or deferred arrangement
if the plan terms providing for the qualified cash or deferred
arrangement were adopted initially before December 29, 2022 (the date
of the enactment of section 414A), even if the plan terms providing for
the cash or deferred arrangement are effective after that date, or
(ii) Any section 403(b) plan adopted initially before December 29,
2022, without regard to the date of adoption of plan terms providing
for salary reduction agreements.
[[Page 3106]]
(2) Merger of plans established before the enactment of section
414A--(i) General rule. If two plans described in paragraph (e)(1)(i)
of this section are merged, then the merged plan will be treated as a
plan described in paragraph (e)(1)(i) of this section. Similarly, if
two section 403(b) plans described in paragraph (e)(1)(ii) of this
section are merged, then the merged plan will be treated as a section
403(b) plan described in paragraph (e)(1)(ii) of this section.
(ii) Effect of merger of multiple employer plans on participating
employers. If either of the plans described in paragraph (e)(2)(i) of
this section are multiple employer plans, then the merger will not
affect whether the merged plan is treated as a plan described in
paragraph (e)(1) of this section with respect to any employer that
maintained the multiple employer plan prior to the merger.
(3) Merger of a plan established on or after the enactment of
section 414A with a plan established before the enactment of section
414A--(i) General rule--(A) Section 401(k) plans. Except as provided in
paragraphs (e)(3)(ii), (iii), and (4)(ii) of this section, if a plan
that includes a cash or deferred arrangement and that is not described
in paragraph (e)(1)(i) of this section is merged with a plan described
in paragraph (e)(1)(i) of this section, then the merged plan will not
be treated as a plan described in paragraph (e)(1)(i) of this section.
(B) Section 403(b) plans. Except as provided in paragraphs
(e)(3)(ii), (iii), and (4)(ii) of this section, if a section 403(b)
plan that is not described in paragraph (e)(1)(ii) of this section is
merged with a plan described in paragraph (e)(1)(ii) of this section,
then the merged plan will not be treated as a plan described in
paragraph (e)(1)(ii) of this section.
(ii) Exception for certain transactions. A plan that is maintained
by a single employer and described in paragraph (e)(1) of this section
will continue to be treated as described in paragraph (e)(1) of this
section after a merger described in paragraph (e)(3)(i) of this
section, if--
(A) There is a transaction described in Sec. 1.410(b)-2(f),
(B) The plan described in paragraph (e)(1) of this section is
designated as the ongoing plan, and
(C) The plan merger occurs within the transition period described
in section 410(b)(6)(C)(ii).
(iii) Applicability to multiple employer plans--(A) Applicability
of exception for certain transactions involving a merger into a
multiple employer plan. In the case of a merger of a plan that is not a
multiple employer plan and not described in paragraph (e)(1) of this
section into a multiple employer plan that is designated as the ongoing
plan, paragraph (e)(3)(ii) of this section applies even though the
ongoing plan is a multiple employer plan and without regard to whether
that plan is a plan described in paragraph (e)(1) of this section,
provided that prior to the transaction described in paragraph
(e)(3)(ii)(A) of this section, the multiple employer plan was treated
as a plan described in paragraph (e)(1) of this section with respect to
the employer that maintained the multiple employer plan and engaged in
the transaction.
(B) Merger of multiple employer plans. If both of the plans
described in paragraph (e)(3)(i) of this section are multiple employer
plans, then the exception in paragraph (e)(3)(ii) of this section does
not apply. In such a case, the merger will not affect whether the
merged plan is treated as a plan described in paragraph (e)(1) of this
section with respect to any employer that maintained either multiple
employer plan prior to the merger.
(4) Treatment of adoption of, or merger with, a multiple employer
plan--(i) In general. If, after December 29, 2022, an employer adopts a
multiple employer plan, then, with respect to that employer, the
multiple employer plan will not be treated as a plan described in
paragraph (e)(1) of this section. The same treatment will apply if the
employer maintains a plan other than a multiple employer plan that is
merged with a multiple employer plan after December 29, 2022, unless
the merger is described in paragraph (e)(3)(iii) of this section.
(ii) Exception for mergers involving plans established before the
enactment of section 414A. Paragraph (e)(4)(i) of this section does not
apply if the plan that is merged into the multiple employer plan is a
plan described in paragraph (e)(1) of this section. Thus, if the
employer maintains a plan described in paragraph (e)(1) of this section
that is merged into the multiple employer plan after December 29, 2022,
then the multiple employer plan will be treated as a plan described in
paragraph (e)(1) of this section with respect to that employer.
(iii) Effect on other participating employers. Neither an adoption
nor a merger described in paragraph (e)(4)(i) or (ii) of this section
affects whether the multiple employer plan is treated as a plan
described in paragraph (e)(1) of this section with respect to any other
employer maintaining the plan.
(5) Plan spin-off. If a portion of a plan described in paragraph
(e)(1) of this section is spun off from that plan, the resulting spun-
off plan will be treated as a plan described in paragraph (e)(1) of
this section if either--
(i) The plan from which the spin-off occurred was not a multiple
employer plan, or
(ii) The plan from which the spin-off occurred was a multiple
employer plan that was treated as described in paragraph (e)(1) of this
section with respect to the employer maintaining the spun-off plan.
(6) Other plan amendments--(i) Treatment of amendments to a plan
established before the enactment of section 414A. A plan described in
paragraph (e)(1) of this section will not fail to be described in
paragraph (e)(1) of this section merely because the plan is amended,
provided that the amendment is not an amendment relating to an action
described in paragraph (e)(2), (3), or (4) of this section. The
preceding sentence applies even if the amendment expands eligibility to
participate in the cash or deferred arrangement, or to enter into a
salary reduction agreement, to other employees of the employer that
maintains the plan or to employees of another employer that is
aggregated with the employer that maintains the plan under section
414(b), (c), or (m).
(ii) Mergers with plans that do not include cash or deferred
arrangements or salary reduction agreements. If an employer maintains a
plan that is described in paragraph (e)(1) of this section and that
plan is merged with a plan that does not include a cash or deferred
arrangement or permit a salary reduction agreement, then the merged
plan will continue to be a plan described in paragraph (e)(1) of this
section after the merger.
(7) Examples. The following examples illustrate the application of
this paragraph (e). For purposes of the examples, each plan is
maintained on a calendar-year basis, includes a cash or deferred
arrangement that was adopted on the same date that the plan was
adopted, and is not a SIMPLE 401(k) plan, governmental plan, or church
plan. These examples assume that this section applies for plan years
beginning on or after January 1, 2026, and, unless otherwise
specifically provided, any plan merger does not occur in connection
with a transaction described in Sec. 1.410(b)-2(f).
(i) Example 1--(A) Facts. Plan A, which is maintained by a single
employer, Employer R, was adopted on January 1, 2021. Plan B, which is
maintained by a single employer, Employer S, was adopted on January 1,
2025. On July 1, 2026, Plan A is merged
[[Page 3107]]
with Plan B, and Plan A is the surviving plan in the merger.
(B) Analysis and conclusion. The merger is a merger of a plan
described in paragraph (e)(1)(i) of this section with a plan that is
not described in paragraph (e)(1)(i) of this section and is not a
merger described in paragraph (e)(3)(ii) or (4) of this section. Under
paragraph (e)(3)(i)(A) of this section, Plan A will no longer be a plan
described in paragraph (e)(1)(i) of this section and will be subject to
paragraph (b) of this section after the merger (unless an exception
described in paragraph (d)(4) of this section, relating to new or small
businesses, applies to Employer R).
(ii) Example 2--(A) Facts. The facts are the same as in paragraph
(e)(7)(i) of this section (Example 1), except that there is an
acquisition described in Sec. 1.410(b)-2(f), and the plan merger
occurs within the transition period described in section
410(b)(6)(C)(ii).
(B) Analysis and conclusion. The merger satisfies the requirements
of paragraph (e)(3)(ii) of this section. Accordingly, Plan A will
continue to be excepted from paragraph (b) of this section as a plan
described in paragraph (e)(1)(i) of this section after the merger.
(iii) Example 3--(A) Facts. Plan C, a multiple employer plan, was
established on January 1, 2021. Plan D, a plan maintained by Employer T
that is not a multiple employer plan, was adopted on January 1, 2024.
Plan D merges with Plan C on December 31, 2024.
(B) Analysis and conclusion. The merger is described in paragraph
(e)(4)(i) of this section and because Plan D is not a plan described in
paragraph (e)(1)(i) of this section, the merger is not excepted under
paragraph (e)(4)(ii) of this section. Similarly, because there was no
transaction described in Sec. 1.410(b)-2(f), the merger is not
described in paragraph (e)(3)(iii) of this section. Accordingly, with
respect to Employer T, Plan C will not be a plan described in paragraph
(e)(1)(i) of this section and will be subject to paragraph (b) of this
section after the merger (unless an exception described in paragraph
(d)(4) of this section, relating to new or small businesses, continues
to apply to Employer T). However, under paragraph (e)(4)(iii) of this
section, the merger does not affect whether Plan C is treated as a plan
described in paragraph (e)(1)(i) of this section with respect to any
other employers.
(iv) Example 4--(A) Facts. Plan E, a plan maintained by Employer U
that is not a multiple employer plan, was adopted on January 1, 2021.
Plan F, a multiple employer plan, was established on January 1, 2024.
Plan E merges with Plan F on December 31, 2024.
(B) Analysis and conclusion. Under paragraph (e)(4)(ii) of this
section, the portion of Plan F that applies with respect to Employer U
will continue to be excepted from paragraph (b) of this section as a
plan described in paragraph (e)(1)(i) of this section after the merger.
However, under paragraph (e)(4)(iii) of this section, the merger does
not affect whether Plan F is treated as a plan described in paragraph
(e)(1)(i) of this section with respect to any other employers.
(v) Example 5--(A) Facts. Plan G, a plan maintained by Employer V
that is not a multiple employer plan, was adopted on January 1, 2021.
Plan G is amended, effective January 1, 2026, to add an additional
participating employer, a subsidiary that is 100 percent owned by
Employer V.
(B) Analysis and conclusion. Because the expansion of eligibility
is not an amendment relating to an action described in paragraph
(e)(2), (3), or (4) of this section, Plan G will continue to be
excepted from paragraph (b) of this section as a plan described in
paragraph (e)(1)(i) of this section after the amendment pursuant to
paragraph (e)(6)(i) of this section.
(vi) Example 6--(A) Facts. Plan J, a multiple employer plan, was
established on January 1, 2021. Employer W adopts Plan J on January 1,
2022. Effective January 1, 2026, the assets and account balances
attributable to the employees of Employer W are spun off to form a new
plan, Plan K, maintained solely by Employer W.
(B) Analysis and Conclusion. Under paragraph (e)(5)(ii) of this
section, Plan K will be excepted from paragraph (b) of this section as
a plan described in paragraph (e)(1)(i) of this section.
(f) Applicability dates--(1) Statutory applicability date. Section
414A applies to plan years beginning after December 31, 2024.
(2) Regulatory applicability date. This section applies to plan
years beginning after [DATE SIX MONTHS AFTER DATE OF PUBLICATION OF
FINAL RULE]. For earlier plan years, a plan is treated as having
complied with section 414A if the plan complies with a reasonable, good
faith interpretation of section 414A.
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2025-00501 Filed 1-10-25; 8:45 am]
BILLING CODE 4830-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.