The SECURE Act 2.0, signed in December of 2022, made numerous changes to retirement plans. Perhaps the most far-reaching changes are the new automatic contribution requirements. Most 401(k) plans that were established on or after December 29, 2022 are required to add automatic enrollment and automatic escalation no later than January 1, 2025. We’re collectively calling these new requirements that go into effect in 2025, mandatory automatic provisions (or

“MAP”s).

All 401(k) plans must meet these requirements unless they meet one of four exemptions:

Please note that, aside from plan establishment date, Accrue does not have the data needed to ensure you are actually exempt from these requirements. We will be relying on the data you provide. Additionally, because we do not have the necessary data to know when you no longer meet the exemption, you must notify Accrue so we are able to timely amend your plan to include the required provisions.

Plans established before December 29, 2022 are exempt from the MAP requirements. According to IRS guidance, “established” is defined as the date the document was signed. This exemption is currently permanent. In the same guidance, the IRS also clarified some questions dealing with plan mergers/spin-offs and multiple employer plans (MEPs).

If two plans that are both exempt due to the date they were established merge, the resulting plan will be exempt and the resulting merged plan will be deemed to have been established before December 29, 2022.

If one plan that is exempt due to the date it was established merges with a plan that was established after December 29, 2022, generally the resulting plan will be treated as if it was established after December 29, 2022. There is an exception that requires steps to ensure the exempt plan is designated as the ongoing plan. If your plan(s) are in this category, we recommend that you work with an ERISA professional to determine if the resulting plan is exempt from the MAP requirements.

If a plan spins off from a plan that is exempt due to the date it was established, the spun off plan will be treated as if it was exempt due to the date it was established as well.

If an employer joins a multiple employer plan (MEP) or pooled employer plan (PEP) that is exempt due to the date they it was established (on or after December 29, 2022), the joining employer will still need to meet the MAP requirements unless it qualifies for another exemption.

The law also exempts new companies from having to meet the MAP requirements. For the purposes of this exemption, a new business is one that has been in business for fewer than three years. The definition of business includes predecessor businesses and legally related businesses.

The IRS has not provided timing guidance for this exemption but it seems likely that the MAP requirements must be met by the beginning of the company’s fourth taxable year. Since plans subject to the MAPs must add an EACA or QACA provision and those can only be added at the beginning of the plan year, care must be taken for plans where their tax year end and plan year end (always 12/31 for plans at Accrue) do not match to ensure they can add the required provisions timely.

For the purposes of this exemption, small companies are defined as “normally” employing 10 or fewer individuals. Unfortunately, we are still awaiting further guidance from the IRS on how to define or determine this limit and if any classes of employees are excluded. Based on the language of the Act., the limit measures employees generally and does not exclude employees who have not met the eligibility requirements to participate in the plan.

In general, once a plan sponsor stops meeting the requirements for this exemption they need to add the MAPs no later than the start of the next taxable year. Since plans subject to the MAPs must add an EACA or QACA provision and those can only be added at the beginning of the plan year, care must be taken for plans where their tax year end and plan year end (always 12/31 for plans at Accrue) do not match to ensure they can add the required provisions timely.

Plans sponsored by churches and governmental organizations are exempt from the MAP requirements regardless of when they were established or the number of employees. Note that governmental plans should not be establishing new 401(k) plans since governments are not eligible to establish a 401(k) plan after 1986.

Similarly, SIMPLE IRAs and SIMPLE 401(k)s are always exempt from the MAP requirements.

If one of these exemptions applies to you, let Accrue know. If you are claiming an exemption for the size or age of your business, you must notify Accrue when you no longer meet the exemption so we are able to timely amend your plan to include the required provisions.

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