The SECURE Act 2.0 of 2022 requires that 401(k) and 403(b) plans enacted after 12/29/2022 must meet the requirements of an Eligible Automatic Contribution Arrangement (EACA) by January 2025.
In simple terms, where an eligible employee does not make an employee deferral election to contribute to the retirement plan, a default deferral election will go into effect, with deposit going to a retirement account on the employee’s behalf.
IRS Minimum Requirements for EACA Provisions
- Once an employee meets the retirement plan eligibility requirements for employee deferral contributions, the employee will be eligible to make a deferral election (including to opt out). The eligible employee has 30 days after their participation date before automatic enrollment starts.
- If an employee does not make a positive election to contribute or opt out within 30 days of entering the plan, the company will need to automatically start the EACA election. The retirement plan’s EACA provisions must be at least (minimum provisions):
- The minimum default EACA rate allowed by the IRS is 3% Pretax. The company can set the initial default rate up to 10%.
- At the start of each new plan year, the employee’s default election rate will increase by 1%. The escalation is continued each year, up to a maximum default rate between 10% and 15%. The annual increase feature is not optional.
- Ex. The plan’s EACA election may be an initial default of 5%, that increases annually up to 10%.
- Note: Annual increase only applies to any employees who never make a positive election (or opt out entirely).
- An employee who is auto enrolled will be able to opt out of the auto election at any time. If the opt out is within the first 90 days of the first auto enroll deduction, they may also receive a refund of the automatic contributions that were deposited. This feature is called permissible withdrawal. The maximum allowed permissible withdrawal period is 90 days.
The
federal mandate retirement plans to adopt Automatic Enrollment features is intended to help employees achieve financial security in retirement. Thank you for your continued commitment to maintaining a qualified retirement plan. We are committed to providing the support and expertise to assist you throughout this document restatement period, to provide a positive experience for all.
Exemptions: The following statuses allow for exemptions to the required automatic enrollment:
- Plan established prior to 12/29/2022
- Governmental and Church plans
- Small businesses that normally employ ten or fewer employees.
- However, once a small employer normally employs more than ten employees, it is no longer considered a small employer and is no longer eligible for the exception. The requirements are effective one year after the year in which the employer normally employs over ten employees.
- New businesses that have been in business for less than three years.
- Once a new business has existed for three years, it is no longer exempt from the requirements. At that time, the plan must begin automatically enrolling the eligible employees.
Article ID: 164, Created: 4/10/2025 at 4:32 PM, Modified: 4/10/2025 at 4:32 PM