On January 10, 2025, the Internal Revenue Service (IRS) issued proposed regulations regarding the automatic enrollment provisions of the SECURE 2.0 Act. Specifically, the guidance clarifies that new employers that join a preexisting plan (established prior to the enactment of SECURE 2.0 on December 29, 2022) will not be subject to the law’s automatic enrollment requirements.
Recap of SECURE 2.0 and its initial impact on multiemployer 401(k) plans
With the passage of SECURE 2.0 on December 29, 2022, Section 101 stated that a 401(k) plan “established” after December 29, 2022, would be subject to a new auto-enrollment rule. All eligible participants had to be automatically enrolled in a plan (subject to an opt-out provision) with deferrals of at least 3% of their compensation and mandatory contribution escalations of 1% per year, capped at 10% of compensation. The provision was scheduled to take effect in January 2025 for all plans established at the date of passage (December 29, 2022). All plans that had an established voluntary 401(k) feature prior to the law’s passage were exempt, or “grandfathered,” from having to implement these new, mandatory features.
Over the last two years, Milliman and the HealthWORKS Coalition focused on informing decision-makers about the negative impact the automatic enrollment rules of SECURE 2.0 would have on multiemployer plans. You can read more about Milliman’s work to resolve this issue here.
In particular, Milliman’s efforts with the HealthWORKS Coalition focused on grandfather status after the IRS issued interim guidance last year stating that for plans “maintained by more than one employer,” the date each employer adopted the 401(k) would be used to determine whether the auto-enrollment grandfather applied to that employer. This raised the concern that even multiemployer 401(k) plans in effect on December 29, 2022, would have to administer auto-enrollment for employers newly bargained into these plans.
Milliman, working closely with the HealthWORKS Coalition and other fund professionals, maintained this provision was overly complex for the vast majority of multiemployer plans that sponsor a 401(k) feature for their members.
Good news for multiemployer 401(k) plans
In the new, proposed regulations published on January 14, 2025, the IRS clarifies that multiemployer 401(k) plans that were adopted before December 2022 are NOT subject to the auto-enrollment rules for employers who bargain into the plan, whether those employers bargained into the plan before or after the passage of SECURE 2.0. While the regulations are proposed at this time, this guidance would be effective six months after the regulations are finalized. Plans are entitled to a “reasonable, good faith interpretation” of SECURE 2.0. Plan sponsors should consult with legal counsel about how to respond to this new guidance.
While additional work is necessary to work with legislative leaders to provide permanent relief for newly established 401(k) plans, this is a major win for multiemployer plans and will help boards of trustees who sponsor these plans stay compliant with the regulations and extend meaningful retirement solutions to secure the financial well-being of union members and their families.