Category Archives: 401(k)

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


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.
    • 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.

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


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

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Things I Worry About: Automatic Enrollment (1)


401(k), 403(b), SECURE 2.0, SECURE Act
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This starts a new series of blog posts…Things I Worry About. I will number these, but they will be more episodic than sequential.

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.
  • There are some exceptions for small and new companies, but those exceptions expire as the number of employees grows or as time goes by.
  • I am worried that some of those plans may fail to begin automatically enrolling those employees next year, or as the companies grow, or as time goes by. The consequences of a failure can be significant.

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. 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 over two months from now.

SECURE 2.0 defines a “new” plan as one established on or after its enactment date—December 29, 2022.

In effect, the law has two effective dates. The first is that the 401(k) or private sector 403(b) plan must have been established on or after December 29, 2022 and the second is that those plans are not required to begin automatically enrolling until January 1, 2025. (A plan established after December 31, 2024 will need to automatically enroll their eligible employees immediately.)

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The SECURE Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans


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

  • Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees work for firms that do not offer plans.
  • However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement that those who do not have access to plans.
  • Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans.
  • To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost: “Starter” 401(k)s and “Safe Harbor” 403(b)s. The purpose of this new plan design is to encourage small employers to set up plans that enable their workers to save for retirement through deductions from their paychecks.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article is about an effort by Congress to extend plan coverage for workers at smaller employers by creating a new and straightforward type of low-cost plan:  the Starter 401(k) and Safe Harbor 403(b).

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Most Popular Insights for the First Quarter 2023


401(k), SECURE 2.0

Each calendar quarter, I post approximately 12 articles on my blog. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

  • The SECURE Act 2.0: The Most Impactful Provisions (#1 — Automatic Plans)

    The SECURE Act 2.0 has over 90 provisions and one of the most impactful provisions in the new requirement to automatically enroll and automatically increase deferrals to new 401(k) and 403(b) plans. “New” 401(k) and 403(b) plans must be automatically enrolled, with automatic deferral increases, no later than the plan year beginning after December 31, 2024 (e.g., 2025 for calendar year plans). Any plan “established” on or after December 29, 2022, is considered a new plan.

  • The SECURE Act 2.0: The Most Impactful Provisions (#2 — Student Loan Matches)

    Some provisions in SECURE Act 2.0 are optional, where plan sponsors can adopt the provision in their discretion. Many of those provisions are opportunities to make plans more attractive or beneficial to employees. One such optional provision in the ability to match student loan repayments, which should be attractive to employers who hire college graduates.

  • The SECURE Act 2.0: The Most Impactful Provisions (#4 — Optional Treatment of Employer Contributions as Roth Contributions)

    The SECURE Act 2.0 permits plan sponsors to give participants the options of receiving employer contributions on a Roth basis. This provision is effective on the date of enactment, December 29, 2022. However, the option may not be as attractive as it first appears, since the matching and nonelective contributions must be fully vested when made.

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The SECURE Act 2.0: The Most Impactful Provisions (#1–Automatic Plans)


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

  • “New” 401(k) and 403(b) plans must be automatically enrolled, with automatic deferral increases, no later than the plan year beginning after December 31, 2024 (e.g., 2025 for calendar year plans).
  • Any plan “established” on or after December 29, 2022 is considered a new plan.
  • Defaulting participants must be invested in a QDIA.
  • There are exceptions for government plans, church plans, SIMPLE 401(k) plans, employers with 10 or fewer employees, and employers during their first 3 years of existence.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022—the “enactment date”.

SECURE Act 2.0 has over 90 provisions, some major and some minor. One of the most impactful provisions is the new requirement to automatically enroll and automatically increase deferrals to new 401(k) and 403(b) plans.

New 401(k)s and 403(b)s must be automatically enrolled and the deferrals automatically increased, beginning for plan years after December 31, 2024. At that time, 401(k) and 403(b) plans will be required to automatically enroll eligible employees at 3% (but not more than 10%) and thereafter automatically increase the deferral rates by 1% per year up to at least 10% (and if desired by the employer, up to a maximum of 15%). Defaulting participants must be invested in a QDIA (qualified default investment alternative).

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Best Interest Standard of Care for Advisors #29


401(k), best interest, broker-dealers, IRA, reg BI, registered investment advisers
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Best Interest Standard and Recommendations of Rollovers and Withdrawals

On June 15, SEC Chairman Clayton issued a statement partially entitled:  “Need for Increased Care when Recommending 401(k)/IRA Rollovers and Withdrawals . . .”. As that title suggests, the Chairman’s statement covers areas where the SEC will focus on recommendations when Reg BI applies on June 30. One of those areas of “increased care” is the recommendation of rollovers (and other withdrawals) from retirement plans.

The best interest standard for investment advisers became applicable last year. As a result, the Chairman’s statement already applies to rollover recommendations by investment advisers.

One part of the statement is entitled:  “Areas Where Increased Care May be Necessary When Making Recommendations to Main Street Investors“. In that part, the statement says:

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The CARES ACT: Helping Your 401(K) Participants During the Coronavirus Crisis


401(k), plan sponsors, recordkeeper, service providers

Waiver of Required Minimum Distributions

Updated through July 28, 2020
By Fred Reish, Bruce Ashton and Betsy Olson

This is the third in our series of articles on special CARES Act provisions designed to help your 401(k) participants.  In our prior articles, we discussed the temporary loan enhancement rules and coronavirus-related distributions (CRDs).  Here we discuss the temporary relief from taking required minimum distributions.  NOTE: This article has been updated to reflect guidance issued after the original publication, in Internal Revenue Service (IRS) Notices 2020-50 and 2020-51.

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The CARES Act: Helping Your 401(K) Participants During the Coronavirus Crisis


401(k), plan sponsors, recordkeeper, service providers

Special Distributions to Qualified Participants

Updated through July 28, 2020
By Fred Reish, Bruce Ashton and Betsy Olson

Our first article discussed CARES Act provisions designed to help your 401(k) participants with temporary loan enhancements.  Here we discuss a second provision of the Act that can help participants who are affected by the coronavirus (called “qualified individuals”*).  This is a special coronavirus-related distribution (a CRD).  Though we discuss this in the context of 401(k) plans, the CRD provision applies to all qualified plans, 403(b) plans and IRAs as well.  NOTE: This article has been updated to reflect guidance issued after the original publication, in Internal Revenue Service (IRS) Notice 2020-50. 

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The CARES Act: Helping Your 401(K) Participants During the Coronavirus Crisis


401(k), plan sponsors, recordkeeper, service providers

The Enhanced Loan Provision for Qualified Participants

Updated through July 28, 2020
By Fred Reish, Bruce Ashton and Betsy Olson

With the spread of the coronavirus and the resulting closures and cutbacks, many 401(k) participants are working reduced hours, but are not considered to be terminated for purposes of ERISA. Furloughs and similar required leaves are common for businesses whose employees interact directly with retail customers, such as restaurants, stores, and gyms.

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