On January 10, the Treasury Department released new guidance on SECURE 2.0 automatic enrollment and catch-up contribution rules. The automatic enrollment guidance is in REG-100669-24. The catch-up contribution proposed regulation is REG 1545-BR11.
Automatic enrollment: The SECURE 2.0 law requires plans to adopt automatic enrollment provisions as of this year. The proposed regulation states that whether a plan satisfies these automatic enrollment requirements will be determined on a plan year basis. The proposed reg also requires a plan to provide for eligible automatic contributions for all employees covered under the plan. The default election must be a uniform percentage that is at least between three percent and 10 percent of compensation, and that annual increases be one percent up to a maximum of 15 percent. The guidance also clarifies that automatic contribution arrangements will not be required in the middle of a plan year, and that they are required only by employers that have been in existence for less than three years. Additionally, automatic enrollment rules will be examined for each employer in a pooled employer plan (PEP) or multiple employer plan (MEP).
Catch-up contributions: The catch-up contribution proposed regulation covers the SECURE 2.0 rule that requires high-income (those earning more than $145,000 in FICA wages) to make catch-up contributions on a Roth (after-tax contributions/tax-free withdrawals) basis. The proposed reg provides that plan participants who become subject to this Roth rule be given an opportunity to change their election. FICA wages from the preceding calendar year are the basis for determination of whether the Roth rule applies. And, plans must allow for Roth contributions in order for an impacted participant to make a catch-up contribution. The guidance also provides methods for making corrections should there be errors relating to Roth catch-up contributions. In addition, the guidance states that plans may (but do not have to) incorporate SECURE 2.0’s authority to participants to make higher contributions if they are 60, 61, 62 or 63 years old.
Prospects: The automatic enrollment guidance is subject to a 60-day comment period, which ends March 17. The catch-up contribution guidance has a proposed applicability date for contributions that begin more than six months after the proposed regulation is finalized.
The Internal Revenue Service (IRS) has scheduled a hearing on the proposed regulation for April 7. Requests to testify, which must include an outline of the topics to be discussed, must be submitted by March 14. The hearing is subject to cancelation if no requests to testify are received by March 14.
Note, however, that this proposed regulation is subject to the regulations freeze imposed by President Trump to give his people an opportunity to review regulations developed during the Biden Administration. These regulations govern a popular and bipartisan law, so they may survive the Trump regulations review process. But their progress through the process may be delayed.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.