Now, the IRS has clarified that auto-enrollment applies to all participants in the plan, establishing one set of regulations that addresses the SECURE 2.0 provision requiring newly-established 401(k) and 403(b) plans to automatically enroll eligible employees beginning with the 2025 plan year.

Unless an employee opts out, a plan sponsor must automatically enroll the employee at an initial contribution rate of at least 3% of the employee’s pay and automatically increase the initial contribution rate by one percentage point each year until it reaches at least 10% of pay. This requirement applies to 401(k) and 403(b) plans established after Dec. 29, 2022, with exceptions for new and small businesses, church plans, and governmental plans.

The proposed regulations provide guidance to plan administrators for properly implementing this requirement and are proposed to apply to plan years that begin more than six months after the date that final regulations are issued. Before the final regulations are applicable, plan administrators must apply a reasonable, good faith interpretation of the statute, according to the IRS statement.

Catch-up contributions

The proposed regulations related to the new SECURE 2.0 provision requires that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions. The IRS extended the SECURE 2.0 provision until 2026, however, the agency also clarified that plan participants who are age 50 or older can continue to make catch-up contributions after 2023.

However, according to the new ruling, the IRS will not permit plan sponsors to require that all participants make catch-up contributions on a Roth basis to simplify plan administration. More specifically, plan participants earning $145,000 or less must still have the option of making traditional catch-up contributions.

Under the new IRS rules, a plan that provides for such a deemed Roth catch-up election would be required to: “(1) treat catch-up contributions subject to the deemed Roth catch-up election as not excludible from the participant's gross income, and (2) maintain the catch-up contributions in a designated Roth account,” according to IRS regulations.

Related: SECURE 2.0: What provisions will most employers be adopting inn 2025?

Further guidance on the new IRS proposed regulations will be published in the Federal Register for catch-up contribution provisions on Jan. 13 and auto-enrollment on Jan. 14.
A public hearing on the proposed catch-up regulations has been scheduled for April 7 at 10 a.m. ET. A public hearing on the proposed auto-enrollment regulation has been scheduled for April 8, at 10 a.m. ET.