Regs proposed on 401(k) enrollment, Roth IRA catchup

The Treasury Department and the Internal Revenue Service issued proposed regulations Friday for several provisions of the SECURE 2.0 Act, including ones related to automatic enrollment in 401(k) and 403(b) plans, and the Roth IRA catchup rule.

SECURE 2.0 Act passed at the end of 2022 and contained an extensive list of provisions related to retirement planning, like the original SECURE Act of 2019, with some being phased in over five years.

One set of proposed regulations involves provisions requiring newly created 401(k) and 403(b) plans to automatically enroll eligible employees starting with the 2025 plan year. In general, unless an employee opts out, a plan needs to 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. The requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, the date the SECURE 2.0 Act became law, with exceptions for new and small businesses, church plans and governmental plans.

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

Roth IRA catchup contributions

The Treasury and the IRS also issued proposed regulations Friday addressing several SECURE 2.0 Act provisions involving catch-up contributions, which are additional contributions under a 401(k) or similar workplace retirement plan that generally are allowed with respect to employees who are age 50 or older.

That includes proposed rules related to a provision requiring that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions.

The proposed regulations provide guidance for plan administrators to implement and comply with the new Roth catch-up rule and reflect comments received in response to Notice 2023-62, issued in August 2023. 

The proposed regulations also provide guidance relating to the increased catch-up contribution limit under the SECURE 2.0 Act for certain retirement plan participants. Affected participants include employees between the ages of 60-63 and employees in newly established SIMPLE plans.

The IRS and the Treasury are asking for comments on both sets of proposed regulations.