The proposed rule also includes guidance on combining notices.

The comment deadline is March 17, 2025.

Background

The new requirement applies only to 401(k) and 403(b) plans that were adopted after December 29, 2022 (the SECURE 2.0 enactment date), even if the plan was not effective until a later date. However, the plan must have had the cash or deferred arrangement or salary reduction component in place.

For example, a profit-sharing plan that was in existence on December 29, 2022 but did not include a 401(k) arrangement would not be considered a pre-enactment plan. If a plan is a pre-enactment plan, it is a pre-enactment plan with respect to new hires. However, special rules, discussed below, applies to transactions such as merger.

The automatic enrollment requirement does not apply to governmental or church plans, small plans or plans of new businesses.

The basic rules

Under the SECURE 2.0 and the proposed rule, covered plans must provide for automatic enrollment for virtually all employees in the plan who are eligible to elect to have contributions made under a cash or deferred arrangement or a salary-reduction agreement. There is an exception for employees with an affirmative election to make contributions at a specific percentage (including 0 percent). A plan must permit an employee who has an automatic contribution made for them to elect not to participate and to take a permissive withdrawal.

The automatic contribution percentage must be a uniform percentage. The initial percentage, which applies for the initial period, is 3 percent. The initial period runs from the time the employee is first eligible to the last day of the plan year that follows the plan year that includes the first day of the initial period.

The automatic contribution must increase by 1 percent for each plan year following the initial period until the percentage is 10 percent. The plan may continue, if it wishes, to increase the percentage up to 15 percent.

Special rules apply to the percentage in the case of breaks in service and affirmative elections. Participants may elect among available investments. If there is no election, the plan’s Qualified Default Investment Alternative (QDIA) rules apply to these automatic contributions.

Participants who are enrolled in the plan under the new proposed rules must be given the opportunity, within 90 days after the initial automatic contribution, to make an election to withdraw the contributions plus earnings that have accrued as of the date of the election and then elect not to participate in the arrangement.

Multiemployer plans

If a multiemployer plan had a 401(k) arrangement prior to the enactment of SECURE 2.0 (i.e., it is a pre-enactment plan), it remains a pre-enactment plan even with respect to employees of new employers. Consequently, the multiemployer plan would not have to apply the automatic enrollment rules to any employees. If the multiemployer plan is a profit-sharing plan adopted before enactment of SECURE 2.0 but did not add a 401(k) arrangement until after enactment, the plan would not be considered a pre-enactment plan and would have to provide automatic enrollment.

Multiple-employer plans

The rules for multiple-employer plans are different than those for multiemployer plans. In the case of a multiple-employer plan, if a non-pre-enactment plan merges with a pre-enactment plan, the employees of the non-pre-enactment plan are subject to auto enrollment. However, the employees (including new employees) of the employers in the plan prior to the enactment of SECURE 2.0 are not subject to automatic enrollment.

Mergers and spinoffs

If two pre-enactment plans merge, their pre-enactment status remains. If one of the plans is not a pre-enactment plan, the pre-enactment plan status applies to the entire new plan only if the pre-enactment plan is the surviving plan and the plan merger occurs within a specific transition period. The transition period is the same several-year period used for testing nondiscrimination when there is an acquisition, merger or spinoff.

In the case of a spinoff, the status (pre-enactment or not) of the plan from which the spinoff took place governs the status of the spun-off plan.

Next steps

The SECURE 2.0 automatic enrollment provision applies to plan years beginning on or after January 1, 2025. The proposed rule will not apply until six months after a final rule is issued.

In the interim, plans will be treated as being in compliance with the statutory requirement if they follow a reasonable, good-faith interpretation of the statute.