On January 10, 2025, the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) issued proposed regulations regarding mandatory automatic enrollment for certain 401(k) and 403(b) plans, reflecting the changes under Section 101 of the SECURE 2.0 Act of 2022 (SECURE 2.0) and how the changes to ease the participant notice requirements under sections 320 and 341 of SECURE 2.0 affect the required automatic enrollment participant notices. The proposed regulations also generally incorporate the earlier initial guidance on the mandatory automatic enrollment requirements that was provided in IRS Notice 2024-2.

The mandatory automatic enrollment provisions under Section 101 of SECURE 2.0 apply for plan years beginning after December 31, 2024, and relate to certain 401(k) cash or deferred arrangements (CODAs) and 403(b) plans established on or after the December 29, 2022, the date of enactment of SECURE 2.0.

Section 320 of SECURE 2.0 relates to the elimination of specific notice requirements for unenrolled participants for plan years beginning after December 31, 2022. Section 341 of SECURE 2.0 allows plans to consolidate certain required defined contribution (DC) plan participant notices under the Internal Revenue Code (Code) or ERISA.

This Benefits Alert covers the following key provisions of the proposed regulations:

• Mandatory automatic enrollment requirements
• Exceptions to mandatory automatic enrollment requirements
• Multiemployer plans, multiple employer plans, and controlled groups
• Mergers and spin-offs
• Effect of plan amendments on pre-enactment plan status
• SECURE 2.0 special rules relating to participant notices
• Proposed applicability date

For the remainder of this article, references to the applicability of the mandatory automatic enrollment requirements for a CODA, as that term applies in a 401(k) plan, also apply to a salary reduction agreement under 403(b).

Mandatory automatic enrollment requirements

For plans that are subject to the new mandatory automatic enrollment rules, the following rules apply:

• Plan year basis determination. The determination of whether a CODA under a plan fails to satisfy the mandatory automatic enrollment requirements (and, therefore, fails to be a qualified CODA) is made on a plan year basis.
• Eligible automatic contribution arrangement (EACA) requirement. The EACA requirement means all eligible employees must be covered, including long-term, part-time (LTPT) employees. A CODA under a plan satisfies the mandatory automatic enrollment requirements only if the plan provides for an EACA¹ that covers all employees in the plan who are eligible for elective deferral contributions (including LTPT employees).
• Exception to mandatory automatic enrollment for affirmative salary deferral elections as of the effective date. Mandatory automatic enrollment does not apply to an employee who, on the date the plan is first required to satisfy the mandatory automatic enrollment requirements of the proposed regulation (i.e., the first day of the 2025 plan year), had an affirmative salary deferral election in effect (that remains in effect), whether the affirmative election is a specified amount or percentage of compensation, or a zero affirmative election.
• Unless employees who became eligible to participate in the CODA before the first day of the 2025 plan year have affirmative salary deferral elections in effect on that date, those employees would need to be automatically enrolled as of that date at the default contribution percentage that would apply for the employee’s initial period of participation in the EACA.
• Affirmative salary deferral elections after the effective date. Ongoing, the default election would not apply if the employee makes an affirmative salary deferral election.
• Ninety-day permissible withdrawals are required. The mandatory automatic enrollment feature (that is required to an EACA under SECURE 2.0) satisfies the requirements only if the plan provides that any employee who has default elective contributions under the EACA may elect to make a 90-day permissible withdrawal after the date of their first default elective contribution.
• EACA uniform percentage of compensation requirement. To reflect the mandatory automatic enrollment minimum contribution percentage requirements, an EACA will satisfy the requirements only if the default election under the EACA is a uniform percentage of compensation.
• Default percentage requirements. The contribution percentage under the default election for the employee’s initial period must be a uniform percentage of compensation that is not less than 3% and not more than 10%. An employee’s initial period (first year of participation) would begin when the employee is first eligible for elective deferral contributions under the plan (or if later, the first day of the 2025 plan year when the plan is first required to satisfy the SECURE 2.0 mandatory automatic enrollment requirements), and the employee’s initial period would end on the last day of the following plan year.
• Mandatory automatic increase requirements. The mandatory automatic enrollment rules generally require automatic increases of 1% to an employee’s minimum default contribution percentage for each plan year beginning after each completed year of participation under the EACA, up to a maximum default contribution percentage of at least 10% (but not more than 15%).
• Investment in qualified default investment arrangement (QDIA) required absent an affirmative investment election. An EACA satisfies the mandatory automatic enrollment requirements only if in the absence of an affirmative investment election (no investment election made by the employee), the default deferral contributions are invested in a QDIA.²

Exceptions to mandatory automatic enrollment requirements

The mandatory automatic enrollment requirements do not apply to:

• Pre-enactment plans, which are:
• Plans that include a qualified CODA (i.e., a 401(k) elective deferral feature) if the plan terms providing for the qualified CODA were initially adopted before December 29, 2022, even if the plan terms providing for the CODA are effective after that date.
• 403(b) plans initially adopted before December 29, 2022, without regard to the date of adoption of plan terms providing for salary reduction agreements.
• SIMPLE 401(k) plans.
• Governmental plans.
• Nonelecting church plans (have not elected to be subject to the minimum eligibility and vesting standards of ERISA and the tax code).
• Certain new businesses and small businesses:
• New businesses in existence for less than three years (aggregated with any predecessor employers) determined as of the beginning of the plan year (mandatory automatic enrollment would not apply mid-plan year).
• Small businesses that normally employ 10 or fewer employees for a taxable year:
• The exception applies until the date that is one year after the close of the first taxable year in which the employer normally employed more than 10 employees.
• This means mandatory automatic enrollment will not apply before the first plan year that begins at least 12 months after the close of the first taxable year of the employer maintaining the plan with respect to which that employer normally employed more than 10 employees.
• New businesses and small businesses that are adopting employers in multiple employer plans are discussed in the next section of this article.

Multiemployer plans, multiple employer plans, and controlled groups

• Multiemployer plans (collectively bargained plans). The proposed regulations clarify that the phrase “a plan maintained by more than one employer” in SECURE 2.0 means “a multiple employer plan,” and not a multiemployer plan. Consequently, the mandatory automatic enrollment requirements would not apply to employees of employers that either newly adopt a pre-enactment multiemployer plan after December 29, 2022, or merge their plan into a pre-enactment multiemployer plan after December 29, 2022 (regardless of the date the merged-in plan was established).
• New businesses and small businesses that are adopting employers in multiple employer plans (MEPs). The exceptions for new and small businesses apply on an employer-by-employer basis. Thus, if an employer participating in a MEP is a new or small business, then it would be exempt from the mandatory automatic enrollment requirements, but that exemption for that employer would not apply to employees of the other participating employers in the MEP who do not meet the exceptions.
• New adopting employer in a MEP after SECURE 2.0 enactment. If an employer adopts a MEP after December 29, 2022, then, for that new adopting employer, the MEP will not be treated as a pre-enactment plan. So, the mandatory automatic enrollment requirements would apply. However, this treatment would not affect other employers who adopted the MEP on or before December 29, 2022.
• Adoption of a MEP after December 29, 2022, applies on an employer-by-employer basis. A MEP’s status as a pre-enactment plan does not determine whether the MEP is treated as a pre-enactment plan for any adopting employer into the MEP. That determination is made on an employer-by-employer basis. Thus, neither an employer’s adoption of a MEP nor a merger of a single employer plan into a MEP after December 29, 2022, would affect whether the MEP is treated as a pre-enactment plan with respect to any other employer maintaining the plan.
• Controlled group member plans. Because the phrase “a plan maintained by more than one employer” in SECURE 2.0 means “a multiple employer plan,” such phrase does not include a plan maintained by members of a controlled group (which is categorized as a single employer plan). Thus, if eligibility to participate in a pre-enactment plan is expanded after December 29, 2022, to include employees of other members of an employer’s controlled group, then the employees of such other controlled group members would not be subject to the mandatory automatic enrollment requirements.

Mergers and spin-offs

• Merger of two pre-enactment plans. If two pre-enactment plans (neither of which is a MEP) merge or if a pre-enactment plan that is not a MEP merges with a pre-enactment MEP, the merged plan will still be treated as a pre-enactment plan and will not be subject to the mandatory automatic enrollment requirements.
• Merger of two MEPs. If two MEPs merge (whether one or both are a pre-enactment MEP), the post-merger treatment for any employer that participated in either MEP prior to the merger is unaffected and remains the same. If a participating employer in a MEP prior to the merger had pre-enactment status, the mandatory automatic enrollment requirements will not apply to its employees. In contrast, if a participating employer in a MEP prior to the merger had post-enactment status, the mandatory automatic enrollment requirements will apply to its employees.
• Merger of a single employer post-enactment plan with a single employer pre-enactment plan. If a post-enactment plan merges with a pre-enactment plan (neither of which is a MEP), then the merged plan generally will not be treated as a pre-enactment plan and will be subject to the mandatory automatic enrollment requirements for all participants, unless the merger occurs in connection with a business transaction as described below and meets the requirements to retain its pre-enactment status.
• Merger of a single employer post-enactment plan into a pre-enactment MEP. If a single-employer post-enactment plan is merged into a pre-enactment MEP, the MEP generally would not be treated as a pre-enactment plan for the merged-in plan of that new participating employer in the MEP and its employees would continue to be subject to the mandatory automatic enrollment requirements after the merger, unless the merger occurs in connection with a business transaction as described below and meets the requirements to retain its pre-enactment status.
• Business acquisitions, dispositions, or mergers. If companies merge their plans as part of a business transaction, like a merger or acquisition described in Code Section 410(b)(6)(C), and the plan merger occurs within the transition period described in Code Section 410(b)(6)(C)(ii) (i.e., between the date of the business transaction and the last day of the plan year immediately following the plan year in which the transaction occurred), then, in the case of a:
• Merger of a single employer post-enactment plan with a single employer pre-enactment plan (neither of which is a MEP), then the mandatory automatic enrollment requirements will not apply to the merged plan if the pre-merger pre-enactment plan is designated as the ongoing surviving plan.
• Merger of a single employer post-enactment plan into a pre-enactment MEP in connection with a business transaction, the MEP is treated as a pre-enactment plan not subject to the mandatory automatic enrollment requirements for the merged-in plan if the MEP was treated as a pre-enactment plan for the other employer that participated in the MEP before the business transaction.
• Merger of a single employer pre-enactment plan into any MEP after SECURE 2.0 enactment. If a single employer pre-enactment plan merges into a MEP after December 29, 2022, then post-merger, the MEP will be treated as a pre-enactment plan for that new participating employer in the MEP and its employees will not be subject to the mandatory automatic enrollment requirements, regardless of whether the MEP itself is a pre- or post-enactment plan.
• Merger of a pre-enactment plan with a plan without a CODA. If a pre-enactment plan is merged with a plan that does not include a CODA, the merged plan will continue to be a pre-enactment plan after the merger and will not be subject to the mandatory automatic enrollment requirements.
• Plan spin-offs. If a portion of a pre-enactment plan is spun off from that plan, the resulting spun-off plan will be treated as a pre-enactment plan and will not be subject to the mandatory automatic enrollment requirements if the plan from which the spin-off occurred either was not a MEP, or was a MEP that was treated as a pre-enactment plan for the employer maintaining the spun-off plan .

Effect of plan amendments on pre-enactment plan status

A plan will not lose its pre-enactment status merely because the plan is amended, provided that the amendment is not an amendment relating to an adoption of a MEP or a plan merger. This rule would apply even if the plan amendment expands eligibility to participate in the CODA to other employees of the employer that maintains the plan or to employees of another employer in the employer’s controlled group.

SECURE 2.0 special rules relating to participant notices

Unenrolled participants. The proposed mandatory automatic enrollment rules provide that if the SECURE 2.0 unenrolled participant notice requirements are satisfied, then the requirement to give the required annual EACA notice does not apply to unenrolled participants, provided they are furnished both:

1. Annual reminder notices required to be given to unenrolled participants to meet the SECURE 2.0 exception regarding their eligibility to participate in the plan and applicable election deadlines
2. Any document requested by the unenrolled participant (if the participant would be entitled to receive such document in the absence of the SECURE 2.0 unenrolled participant notice exception)

Consolidation of notices. SECURE 2.0 permits the consolidation of certain initial and annual notices required to be given to plan participants under the Code and ERISA, if such consolidated notices are provided to the participant at the time required for each such notice. This proposed rule allows the EACA notice applicable to the mandatory automatic enrollment rules to be combined with one or more of the following required notices:

• ERISA notices: QDIA notice, automatic contribution arrangement (ACA) notice
• IRS notices: 401(k) safe harbor plan notice (whether the traditional or qualified automatic contribution arrangement (QACA) safe harbor)

Proposed applicability date

The proposed regulations state both a statutory applicability date (the applicability date stated in SECURE 2.0) and a regulatory applicability date.

• Statutory applicability date. The proposed regulations do not change the SECURE 2.0 statutory applicability date for these changes. Thus, the proposed regulations provide that these changes apply to plan years beginning after December 31, 2024 (i.e., as of the beginning the 2025 plan year).
• Regulatory applicability date. The proposed regulations will apply to plan years starting more than six months after the final regulations are issued (e.g., for a calendar plan year, if the final regulations are issued in August 2025, they would apply beginning January 1, 2027.)

For plan years between the statutory applicability date and the regulatory applicability date, a plan will be treated as having complied with these rules if it follows a reasonable, good faith interpretation of the new requirements.

Comments to the Treasury and IRS on the proposed regulations must be submitted by March 17, 2025. A public hearing is scheduled for April 8, 2025, subject to cancellation absent any requests by interested parties to speak at the hearing.

Please contact your Milliman consultant for advice on how these provisions may impact your plan(s).

¹ An EACA is an automatic contribution arrangement (automatic enrollment feature) that satisfies: (1) the uniformity requirement and (2) the notice requirement (including being provided to each covered employee and meeting the content and timing requirements).

² A QDIA under ERISA provides a way to obtain fiduciary relief with respect to a DC plan participant’s default investments in the absence of an affirmative investment election if the QDIA meets specific regulatory criteria set forth by the U.S. Department of Labor (DOL), generally designed to provide a diversified investment product or portfolio intended to provide long-term growth and capital preservation while minimizing the risk of large losses. Examples of QDIAs include target-date funds, model portfolios, balanced funds, and managed accounts.