Regulatory Victory for Top HealthWORKS Priority – SECURE 2.0 Automatic
Enrollment Guidance
In a Washington political environment that has been plagued by paralysis over the past two years, HealthWORKS’ education efforts were
able to help secure a win for multiemployer plans and the retirement savings of plan participants!
On Friday, January 10, the U.S. Department of the Treasury Internal Revenue Service (IRS) issued regulatory guidance regarding the automatic
enrollment provisions of the SECURE 2.0 Act of 2022. Specifically, the guidance clarifies that new employers that join a preexisting plan (established prior to the enactment of SECURE 2.0 – December 29, 2022) WILL
NOT be subject to the automatic enrollment requirements of SECURE 2.0.
What’s the Issue? SECURE
2.0 passed on December 29, 2022. Section 101 of SECURE 2.0 provides that a 401(k) plan “established” after December 29, 2022, is subject to a new auto enrollment rule: eligible participants must automatically be enrolled (subject to an opt-out provision) in elective
deferrals of at least 3% of their compensation, with an escalator of 1% per year, up to a cap of 10%. This provision was slated to come into effect beginning January 1, 2025, for 401(k) plans established after December 29, 2022. 401(k) plans established before
December 29, 2022, are grandfathered in and are not required to include this auto-enrollment feature.
Grandfather status is the issue on which we have been working. IRS interim guidance issued last year stated for plans “maintained by more
than one employer,” the date each employer adopted the 401(k) was used to determine whether the auto enrollment grandfather applied to that employer. This raised the specter that even multiemployer 401(k) plans in effect on December 29, 2022, would have to
administer auto-enrollment for employers newly bargained into these plans.
The IRS heard us! In
proposed regulations that will be published on January 14, 2025, the IRS says that multiemployer 401(k) plans that were adopted before December 29, 2022, are not subject to the autoenrollment
rules for employers who bargain into the plan – whether they bargain into the plan before or after SECURE 2.0.
It’s not a done deal – the regulations are proposed at this time – but it’s a great start. If the proposed rules are ultimately finalized
in their current form, this guidance would be effective six months after the regulations are finalized. In the interim, plans are entitled to a “reasonable, good faith interpretation” of SECURE 2.0 but the IRS stopped short of permitting reliance on the proposed
regulation. We advise all members with 401(k) plans to confer with their legal counsel as to how to respond to this new guidance. Here is a link to the proposed
regulation.
This is an exciting development that serves as a tangible example of the importance of showing up and educating policymakers and agency
staff. HealthWORKS has been educating policy makers on the unintended consequences of SECURE 2.0’s automatic enrollment provisions for the last two years making it a primary issue of focus during the Coalition’s 2024 Washington D.C Spring Fly-In. In addition
to making the issue a focal point of the fly-in’s education and advocacy meetings, the coalition submitted public comments to the Department of Treasury and had advocacy meetings at the Department of the Treasury in Washington to encourage an interpretation
of the law that was ultimately included in January published guidance
The Coalition would like to extend a special thank you to the Chair of the HealthWORKS Pension Working Group, Gerald
Erickson of Milliman, as well as Linda Josephson of Barlow Coughran Morales & Josephson, who led the coalition’s efforts on this front and provided invaluable subject matter
expertise and real-world experience throughout the public comment and advocacy process.
While the Coalition applauds this regulatory announcement from the Department of the Treasury, we still recognize that further reform
is needed with respect to SECURE 2.0’s automatic enrollment provision’s impact on multiemployer plans; most notably, a legislative exemption to the automatic enrollment mandate for multiemployer plans similar to the exemption enjoyed by government and church
plans.
HealthWORKS looks forward to continuing to work with our members to leverage our experience and expertise and bring one clear united voice
from across the multiemployer industry to educate lawmakers on common sense solutions.
