Does Our Plan Fall Under SECURE 2.0’s Automatic Enrollment Requirement?

Q: We are a private 501(c)(3) tax-exempt organization that terminated a 401(k) plan that we had maintained for many years, replacing it with a new 403(b) plan, effective January 1, 2023. The SECURE 2.0 Act of 2022 passed shortly before our plan’s effective date, and we do not meet any of the exceptions to the automatic enrollment requirement that will become effective on January 1, 2025 (e.g., we’re not a church, not a government and have more than 10 employees). However, in order for our plan to be effective on January 1, 2023, we had to have a plan document in place prior to that, so we adopted a written plan in November 2022. Would that get us off the hook in terms of the automatic enrollment requirement, even though we did not commence contributions to the plan until January 2023?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Until recently, the answer to your question was unclear, given the language of the existing SECURE 2.0 provision. However, on December 20, 2023, the IRS released Notice 2024-02, which clarifies that “a qualified [cash or deferral arrangement] or section 403(b) plan that is established before December 29, 2022, is called a pre-enactment qualified CODA or pre-enactment section 403(b) plan.” The very first Q&A expressly addresses the automatic enrollment requirement, excerpted as follows:

“Q. A-1: When is a qualified CODA established for purposes of determining whether the qualified CODA is excepted under section 414A(c)(2)(A)(i) of the Code from the requirements related to automatic enrollment (that is, whether the qualified CODA is a pre-enactment qualified CODA)?

A. A-1: For purposes of section 414A(c)(2)(A)(i), a qualified CODA is established on the date plan terms providing for the CODA are adopted initially. This is the case even if the plan terms providing for the CODA are effective after the adoption date. For example, if an employer adopted a plan that included a qualified CODA on October 3, 2022, with an effective date of January 1, 2023, then the qualified CODA would have been established on October 3, 2022 (that is, before December 29, 2022), even though the qualified CODA was not effective until after December 29, 2022.”

Thus, your 403(b) plan would be is considered to have been established in November 2022 for purposes of the SECURE 2.0 automatic enrollment provision. Accordingly, your plan will NOT have to meet the requirements for an eligible automatic contribution arrangement, or EACA, in 2025, since it was established before December 29, 2022, the effective date of SECURE 2.0.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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