Things I Worry About (6): Automatic Enrollment (5) and PEPs


401(k), 403(b), SECURE 2.0
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Key Takeaways

  • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just days ago.
  • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022. “Old” plans—those adopted before the enactment date—are not required to automatically enroll.
  • However, it was not clear whether an “old” single employer plan that joined a “new” (post-enactment) PEP would be considered a new plan or an old plan. In fact, the IRS had issued some guidance that strongly suggested that it would be considered a new plan—which would mean that it would need to automatically enroll its eligible participants.
  • The IRS has just issued a proposed regulation on the SECURE 2.0 provision on automatic enrollment. The proposal provides that the “old” plan would continue to be considered an “old” plan even after joining a “new” PEP.

SECURE 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year…in other words the automatic enrollment requirement would apply beginning with the first payroll in January 2025.

The IRS previously issued Notice 2024-2 which suggests that, if a pre-enactment (“old”) 401(k) or private sector 403(b) plan joined (or, in IRS speak, merged into) a post-enactment (“new”) pooled employer plan, or PEP, the old plan would be treated as a new plan and would need to begin automatically enrolling its eligible employees. That presented a problem for plan sponsors of old plans who were considering joining a new PEP. Some simply didn’t want to automatically enroll their employees. Others who had rich matching formulas were worried about the cost. In any event, the Notice created a problem for many employers when considering joining a newly established PEP.

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The 401(k) Christmas Song


General

As some of you all know, I have asked ChatGPT to write lyrics for retirement songs…because I co-host a podcast on retiring. However, this time I asked it to write a Christmas carol, and it did. Enjoy! Also, regardless of what holy day you honor, or if you don’t honor any holy day, I wish you the very best for these holidays and for the new year!

(Verse 1)
Oh, the snow is falling, the lights aglow,
The joy of saving starts to show.
Each dollar tucked away with care,
For future days we’ll soon share there.

(Chorus)
Save in your 401(k), oh, what a gift today!
A brighter future’s on its way,
For a life of joy and play. Continue reading The 401(k) Christmas Song →

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Things I Worry About (5): Long-Term, Part-Time Employees (1)


401(k), 403(b), plan sponsors, SECURE Act
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Key Takeaways

  • SECURE Act 1.0 required that long-term, part-time (LTPT) employees be allowed to defer into 401(k) plans beginning January 1, 2024 for calendar year plans. However, plan sponsors are not required to contribute for them.
  • LTPT employees for SECURE 1.0 are those who have worked at least 500 hours a year for three consecutive years, but didn’t satisfy a plan’s regular eligibility provisions.
  • SECURE Act 2.0 reduced the three-year requirement to two years and extended the requirement to private sector 403(b) plans. The 2.0 change applies in January 2025 for calendar year plans. As a result, if the new two-year requirement is satisfied, those LTPT employees must be allowed to defer into the plans for the first payroll in January 2025.
  • My concern is that plan sponsors—and particularly small plan sponsors (e.g., private schools with 403(b) plans)—may inadvertently fail to satisfy these qualification rules and put their plans in jeopardy.

The SECURE Act (“SECURE 1.0”) included a provision that required sponsors of 401(k) plans to include their long-term, part-time, or LTPT, employees in their plans for purposes of deferring part of their compensation into the plan. Plan sponsors are not required to contribute for those LTPT participants (e.g., matching contributions) even if they do for “regular” participating employees,  but they may.

For purposes of SECURE 1.0, a part-time, or PT, employee is an employee who works at least 500 hours a year, but not enough to satisfy the plan’s regular eligibility provisions. A long-term employee is a PT employee who satisfies the requirement for three consecutive years. The first contingent of qualifying LTPT employees must have been allowed to defer in January of 2024. (For purposes of this article, I’m assuming that plans are on a calendar year.)

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SEC 2025 Examination Priorities: Retirees and Rollovers


IRA, rollovers, SEC
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Key Takeaways

    • Over 11,000 people are reaching age 65 every day and most have retired or are contemplating retirement.
    • Many of those retirees will rollover money from retirement plans, including 401(k) plans, into IRAs.
    • The IRA investments will need to provide sustainable retirement income for the lifetimes of those retirees, with regular withdrawals to pay for their costs of living.
    • Many retirees will receive advice from broker-dealers and investment advisers who are subject to SEC regulation and examinations.
    • To compound matters, many of those retirees will, in due course, suffer from diminished cognitive abilities, reducing their ability to evaluate the advice they are being given.
    • The cumulative effect of these factors is that the SEC is focusing on advice to retirees and older investors, as reflected in the 2025 Examination Priorities.

The SEC’s Division of Examinations issued its 2025 Exam Priorities a few months ago. 2025-exam-priorities.pdf

Many articles have been written about those priorities, but none—at least that I have seen—have addressed the focus on retirees, older investors and rollovers. This article fills that gap.

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ERISA Moments Ep. 28: The 2024 Election and What it Means for Retirement Policy


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. See the newest episode, The 2024 Election and What it Means for Retirement Policy,  on the Spotlight on Benefits blog.

Watch the video on the Spotlight on Benefits blog.

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Things I Worry About (4): Automatic Enrollment (4)


401(k), 403(b), SECURE 2.0
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Key Takeaways

  • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022.
  • Unfortunately, it is likely that some of the affected plan sponsors will fail to automatically enroll their eligible employees on a timely basis.
  • My last post discussed the correction methods if the failures occurred due to a “reasonable administrative error” and were corrected on a timely basis.
  • This article discusses corrections for those failures if they did not result from a “reasonable administrative error” or if they were not corrected on a timely basis.

SECURE 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

Two earlier blog posts, Things I Worry About (1) and Things I Worry About (2), discussed the general requirements and my concerns about which employees must be automatically enrolled. My last post, Things I Worry About (3), covered the straightforward and low cost corrections in SECURE 2.0 where the failures were due to reasonable administrative errors and were corrected on a timely basis.

This one looks at correcting automatic enrollment failures, such as not enrolling the eligible employees when required, that are not due to reasonable administrative errors or are not corrected on a timely basis.

Continue reading Things I Worry About (4): Automatic Enrollment (4) →

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The Last Rodeo


General

A Country and Western Retirement

I asked ChatGPT to write lyrics for a country and western song about retirement . . . about the uncertainty of moving into a new phase of life. Here is what I got:

(Verse 1)
I’ve spent all my life punchin’ that clock,
Dust on my boots, walkin’ the walk.
Built a name, carved it deep, strong and proud,
But now the quiet’s callin’ out loud.

(Chorus )
It’s the last rodeo, it’s time to ride on,
But I’m scared of the shadows, the dreams that are gone.
Will I still matter, when I lay my tools down,
Or fade like an echo, in a cold empty town?

(Verse 2)
Friends shake my hand, say “You’ve earned some rest,”
But this heart in my chest still pounds at my best.
I’ve lived for the rush, the workin’ man’s pride,
Now I’m fearin’ the silence waitin’ outside.

Continue reading The Last Rodeo →

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ERISA Moments Ep. 27: The SEC Staff Speaks Out on Standards for Rollover Recommendations


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, The SEC Staff Speaks Out on Standards for Rollover Recommendations, on the Spotlight on Benefits blog.

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Things I Worry About (3): Automatic Enrollment (3)


401(k), 403(b), SECURE 2.0
, ,

Key Takeaways

    • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
    • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022.
    • Unfortunately, it is likely that some of the affected plan sponsors will fail to automatically enroll their eligible employees on a timely basis.
    • This article discusses corrections for those failures.

SECURE  2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last two blog posts, Things I Worry About (1) and Things I Worry About (2), discussed the general requirements and my concerns about which employees must be automatically enrolled.

This one looks at the provisions in SECURE 2.0 about correcting automatic enrollment failures, such as not enrolling the eligible employees when required.

Continue reading Things I Worry About (3): Automatic Enrollment (3) →

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Things I Worry About (2): Automatic Enrollment (2)


401(k), 403(b), SECURE 2.0, SECURE Act
,

Key Takeaways

  • The SECURE Act 2.0 requires that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • Unfortunately, there are unanswered questions about how the automatic enrollment requirement will be applied. This article discusses two of those.

SECURE Act 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last blog post, Things I Worry About (1), discussed the general requirements and my concerns about those.

This one looks at two specific issues…automatic enrollment of “which” eligible employes and automatic enrollment of long-term, part-time employees.

Continue reading Things I Worry About (2): Automatic Enrollment (2) →

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