Is Auto Enrollment Required in a 401(k) Replacing a Terminated 403(b) Plan?

Q: I know from a prior Ask the Experts column that you can terminate a 403(b) plan and replace it with a 401(k) plan without violating the successor plan rules. But what about the new automatic enrollment requirements for new plans under the SECURE 2.0 Act, would they apply?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Generally, yes. A newly established 401(k) plan that replaces a terminated 403(b) plan would be subject to SECURE 2.0’s mandatory automatic enrollment requirements, including the requirement to operate as an Eligible Automatic Contribution Arrangement (“EACA”), unless an exemption applies. The EACA provision generally requires the new 401(k) plan to have auto enrollment, even if the terminated 403(b) plan lacked such a provision.

However, keep in mind that there are a number of exemptions from this new provision. For example, church and governmental employers, employers that have been in existence for fewer than three years, and employers with 10 or fewer employees are not subject to this new automatic enrollment provision for newly established plans. In addition, the IRS has issued proposed, and not yet final, regulations implementing these rules, so additional guidance could affect the analysis.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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