By Federal Tax Update Staff
Treasury and the IRS have proposed regulations on retirement plan automatic enrollment and catch-up contributions, incorporating changes under the 2022 SECURE 2.0 Act. (Preamble to Prop Reg REG-100669-24; IR 2025-09, 1/10/2025;Preamble to Prop Reg REG-101268-24; IR 2025-07, 1/10/2025)
Automatic enrollment. The SECURE 2.0 Act added Code Sec. 414A, to require that certain newly-established 401(k) and 403(b) plans automatically enroll eligible employees beginning with the 2025 plan year.
The rule clarifies that a cash or deferred arrangement or salary reduction agreement under a plan only satisfies Section 414A’s automatic enrollment requirements if the plan provides an eligible automatic contribution arrangement covering all eligible employees in the plan.
Under the proposal, the default election contribution percentage for an employee’s initial period must be a uniform percentage that is between 3% and 10%. The rule also provides for a 1% increase annually after an employee’s initial period, up to at least 10%, but no more than 15%.
An exception is provided, so that an eligible automatic contribution arrangement does not run afoul of Section 414A merely because the default election under the arrangement does not apply to an employee who had an affirmative election in effect to have contributions made on their behalf under a cash or deferred election or a salary reduction agreement in a specified amount or percentage of compensation, or not have contributions made on their behalf.
The rule provides other exceptions, including for SIMPLE 401(k) plans, governmental and church plans, plans maintained by new and small businesses, and certain plans established before Section 414A was adopted.
While Section 414A is applicable to plan years beginning after December 31, 2024, the proposed rule would apply to plan years beginning more than six months after final regulations are issued.
Comments and hearing. Comments on the automatic enrollment rule are due March 17, 2025. A hearing is scheduled for April 8, 2025, but will be canceled if no requests to speak and outlines are received by March 17. Comments can be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-100669-24).
Catch-up contributions. Treasury and the IRS issued a second proposed rule regarding additional contributions under certain workplace retirement plans for employees who are 50 or older. The rule addresses several SECURE 2.0 Act catch-up provisions under Code Sec. 401(k), Code Sec. 403(b), and Code Sec. 414(v).
The rule concerns a requirement that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions. Under the rule, for tax years after December 31, 2023, plans must treat catch-up contributions subject to the deemed Roth catch-up election as not excludible from the participant’s gross income. Plans also must maintain these catch-up contributions in a designated Roth account.
The rule also addresses increased catch-up contribution limits under the SECURE 2.0 Act for certain retirement plan participants, including employees aged 60 to 63 and employees in newly established SIMPLE plans.
Beginning after 2024, for participants in plans other than SIMPLE plans who are 60, 61, 62, or 63 during the tax year, the catch-up limit is increased to 150% of the 2024 limit, or $11,250 (150% of $7,500), adjusted for changes in the cost of living.
For SIMPLE plan participants, the increased catch-up limit for participants aged 60 to 63 is 150% of the applicable dollar catch-up limit that applies during a taxable year beginning in 2025, or $5,250 (150% of $3,500), adjusted for changes in the cost of living. For certain other SIMPLE plan participants, the rule would increase the catch-up limit to 110% of the 2024 limit, or $3,850 (110% of $3,500), adjusted for changes in the cost of living.
The rules would apply for contributions in tax years beginning more than six months after final regulations are issued, with separate applicability dates for plans maintained pursuant to collective bargaining agreements.
Comments and hearing. Comments on the catch-up rule are due March 14, 2025. A hearing is scheduled for April 7, 2025, but will be canceled if no requests to speak and outlines are received by March 14, 2025. Comments may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-101268-24).
This article originally appeared in Federal Tax Update.
