Tax Facts
3757.1 / What auto-enrollment rules apply to 401(k) plans starting in 2025?
Starting with the 2025 tax year, the SECURE Act 2.0 requires employers that establish new 401(k) or 403(b) plans to auto-enroll employees in the savings plans.
The minimum auto-enrollment contribution rate will range from 3% to 10%. Each year, the minimum contribution rate will then increase by 1% until the rate reaches 15%.
The IRS has released proposed regs confirming that there is no delay--meaning that new plans are currently subject to the auto-enrollment rule starting in 2025. The rules contained in the proposed regulations will be effective six months after the date that final regulations are published. In the meantime, a reasonable, good faith interpretation of the law is required.
The regulations clarify that there is no provision that excludes any class of participant from auto-enrollment, meaning that long-term part-time employees must also be automatically enrolled if they are otherwise eligible and the plan is subject to the rule. Participants with an affirmative election to opt out of auto-enrollment on file do not have to be automatically enrolled in the plan. The preamble to the proposed regulations clarifies that when plans did not automatically enroll participants who were already participating in the plan, yet did not make an affirmative election, they must automatically enroll the participant by the first plan year when final regulations are effective (presumably, 2027). The participant's default deferral rate must be calculated as though they had been auto-enrolled since 2025.
Under the law, small business employers who normally employ 10 or fewer employees and new businesses are exempt from the auto-enrollment requirement. The proposed regulations clarify that self-employed individuals, independent contractors and corporate directors do not count toward the 10-employee threshold (only common law employees must be included).
The minimum auto-enrollment contribution rate will range from 3% to 10%. Each year, the minimum contribution rate will then increase by 1% until the rate reaches 15%.
The IRS has released proposed regs confirming that there is no delay--meaning that new plans are currently subject to the auto-enrollment rule starting in 2025. The rules contained in the proposed regulations will be effective six months after the date that final regulations are published. In the meantime, a reasonable, good faith interpretation of the law is required.
The regulations clarify that there is no provision that excludes any class of participant from auto-enrollment, meaning that long-term part-time employees must also be automatically enrolled if they are otherwise eligible and the plan is subject to the rule. Participants with an affirmative election to opt out of auto-enrollment on file do not have to be automatically enrolled in the plan. The preamble to the proposed regulations clarifies that when plans did not automatically enroll participants who were already participating in the plan, yet did not make an affirmative election, they must automatically enroll the participant by the first plan year when final regulations are effective (presumably, 2027). The participant's default deferral rate must be calculated as though they had been auto-enrolled since 2025.
Under the law, small business employers who normally employ 10 or fewer employees and new businesses are exempt from the auto-enrollment requirement. The proposed regulations clarify that self-employed individuals, independent contractors and corporate directors do not count toward the 10-employee threshold (only common law employees must be included).
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