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[Federal Register Volume 90, Number 8 (Tuesday, January 14, 2025)]
[Proposed Rules]
[Pages 3092-3107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00501]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-100669-24]
RIN 1545-BR08

Automatic Enrollment Requirements Under Section 414A

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document sets forth proposed regulations that would 
provide guidance with respect to the automatic enrollment requirements 
that apply to certain retirement plans. The proposed regulations 
reflect statutory changes made by the SECURE 2.0 Act of 2022 requiring 
that certain cash or deferred arrangements and salary reduction 
agreements be eligible automatic contribution arrangements that satisfy 
additional specified requirements. The proposed regulations would 
affect participants in, beneficiaries of, employers maintaining, and 
administrators of certain retirement plans that include cash or 
deferred arrangements or annuity contracts purchased under salary 
reduction agreements and other retirement plans that include eligible 
automatic contribution arrangements. This document also provides notice 
of a public hearing.

DATES: Written or electronic comments must be received by March 17, 
2025. A public hearing on this proposed regulation has been scheduled 
for April 8, 2025, at 10 a.m. ET. Requests to speak and outlines of 
topics to be discussed at the public hearing must be received by March 
17, 2025. If no outlines are received by March 17, 2025, the public 
hearing will be cancelled.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-100669-
24) by following the online instructions for submitting comments. 
Requests for a public hearing must be submitted as prescribed in the 
``Comments and Public Hearing'' section. Once submitted to the Federal 
eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comment submitted electronically or 
on paper to its public docket on www.regulations.gov. Send paper 
submissions to: CC:PA:01:PR (REG-100669-24), Room 5203, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
call Christina M. Cerasale at (202) 317-4102 or Kara M. Soderstrom at 
(202) 317-6799; concerning submission of comments, the hearing, and the 
access code to attend the hearing by telephone, call the Publications 
and Regulations Section at (202) 317-6901 (not toll-free numbers) or 
email [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Authority

    These proposed regulations are promulgated under section 7805(a) of 
the Internal Revenue Code (Code), which provides that ``the Secretary 
shall prescribe all needful rules and regulations for the enforcement 
of [the Code], including all rules and regulations as may be necessary 
by reason of any alteration of law in relation to internal revenue.'' 
In addition, section 341 of the SECURE 2.0 Act of 2022 (SECURE 2.0 
Act), enacted on December 29, 2022, as Division T of the Consolidated 
Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459 (2022), 
instructs the Secretaries of the Treasury and Labor (or their 
delegates) to adopt regulations related to the consolidation of notices 
required for defined contribution plans under the Code and the Employee 
Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat. 
829, as amended (ERISA).

Background

    This notice of proposed rulemaking sets forth a proposed regulation 
under section 414A of the Code that would be added to the Income Tax 
Regulations (26 CFR part 1). Section 414A, which was added to the Code 
by section 101 of the SECURE 2.0 Act, provides that certain retirement 
plans must automatically enroll employees.
    In addition to adding a new regulation under section 414A of the 
Code, this notice of proposed rulemaking sets forth proposed amendments 
to the regulations under section 414(w). These amendments to Sec.  
1.414(w)-1 would reflect the application of section 414A and the 
exception to the notice requirements for unenrolled participants set 
forth in section 414(bb), as added to the Code by section 320 of the 
SECURE 2.0 Act. The proposed amendments to Sec.  1.414(w)-1 also would 
address section 402A(e)(5)(C) of the Code, which was added to the Code 
by section 127 of the SECURE 2.0 Act, as well as section 341 of the 
SECURE 2.0 Act. Section 402A(e)(5)(C) of the Code and section 341 of 
the SECURE 2.0 Act permit the consolidation of certain notices required 
under the Code and ERISA.

I. In General

A. Cash or Deferred Arrangements and Salary Reduction Agreements

    Section 401(k)(1) provides that a profit-sharing, stock bonus, pre-
ERISA money purchase, or rural cooperative plan will not fail to 
qualify under section 401(a) merely because it includes a cash or 
deferred arrangement (CODA) \1\ that is a qualified CODA. Under section 
401(k)(2), a CODA is a qualified CODA only if it satisfies certain 
requirements. These requirements include that elective contributions 
under the CODA are subject to the section 401(k)(2)(B)

[[Page 3093]]

restriction on when distributions may be made, and that the arrangement 
satisfies the actual deferral percentage (ADP) test in section 
401(k)(3)(A)(ii).\2\
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    \1\ Under Sec.  1.401(k)-1(a)(2)(i), a CODA generally is an 
arrangement providing for an election by an employee to have the 
employer provide either contributions to a plan described in section 
401(a) or payments directly in cash.
    \2\ The ADP test in section 401(k)(3)(A)(ii) compares the 
average deferral percentage for highly compensated employees with 
the average deferral percentage for non-highly compensated 
employees. As an alternative to satisfying the annual ADP test, a 
plan may satisfy the provisions of section 401(k)(11), (12), (13), 
or (16).
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    Section 403(b)(1) of the Code provides for an exclusion from gross 
income of certain contributions that are used to purchase an annuity 
contract, including contributions that are made under a salary 
reduction agreement. Although there is no direct definition of salary 
reduction agreement in section 403(b), several provisions of the Code 
set forth rules that apply to the use of a salary reduction agreement 
to purchase an annuity contract described in section 403(b). For 
example, section 403(b)(11) provides distribution restrictions that 
apply to ``contributions made pursuant to a salary reduction 
agreement.''

B. Automatic Enrollment

    Section 902 of the Pension Protection Act of 2006, Public Law 109-
280, 120 Stat. 780 (PPA `06), added sections 401(k)(13) and 414(w) to 
the Code to facilitate automatic contribution arrangements (also 
referred to as automatic enrollment) in qualified CODAs under section 
401(k). Section 414(w) also applies to automatic contribution 
arrangements under section 403(b) plans; section 457(b) plans 
maintained by governmental employers described in section 457(e)(1)(A); 
simplified employee pensions, the terms of which provide for a salary 
reduction arrangement described in section 408(k)(6); and SIMPLE 
individual retirement accounts described in section 408(p). An 
automatic contribution arrangement is a CODA or other similar 
arrangement providing for elections on the part of eligible employees 
that includes a default election under which an eligible employee is 
treated as having elected to have a specified contribution made on the 
employee's behalf under the plan while permitting the employee to make 
an affirmative election to have contributions made in a different 
amount on the employee's behalf (including no contributions).\3\
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    \3\ Section 902 of PPA '06 also added a new section 514(e) to 
ERISA, which broadly provides that, notwithstanding any other 
provision of section 514, title I of ERISA supersedes State laws 
that would directly or indirectly prohibit or restrict the inclusion 
of an automatic contribution arrangement in a plan.
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1. Qualified Automatic Contribution Arrangements Under Section 
401(k)(13)
    Section 401(k)(13) provides a design-based safe harbor for a CODA 
that provides for automatic enrollment at a specified level and meets 
certain employer contribution, notice, and other requirements. A CODA 
that satisfies these requirements, referred to as a qualified automatic 
contribution arrangement (QACA), is treated as satisfying the ADP test.
    Section 401(k)(13)(C)(ii) provides that the default election in a 
QACA ceases to apply to any eligible employee if the employee makes an 
affirmative election to not have any elective contributions made on the 
employee's behalf or to have elective contributions made in a specified 
amount or percentage of compensation on the employee's behalf. 
Reflecting that provision, Sec.  1.401(k)-3(j)(1)(ii) provides that the 
default election ceases to apply with respect to an eligible employee 
for periods of time with respect to which the employee has an 
affirmative election that is currently in effect to have elective 
contributions made in a different amount on the employee's behalf (in a 
specified amount or percentage of compensation) or not have any 
elective contributions made on the employee's behalf.
    Section 401(k)(13)(C)(iii) sets forth a series of minimum default 
contribution percentages (based on the plan year that the arrangement 
first applies to an employee) that an automatic contribution 
arrangement must satisfy to be a QACA and requires that the default 
contribution percentages apply uniformly. Under Sec.  1.401(k)-
3(j)(2)(iii), a plan does not fail to satisfy this uniform percentage 
requirement merely because: (1) the percentage varies based on the 
number of years or portions of years an eligible employee has 
participated in the automatic contribution arrangement intended to be a 
QACA; (2) the rate of elective contributions under a cash or deferred 
election that is in effect immediately prior to the effective date of 
the default percentage under the QACA is not reduced; (3) the rate of 
elective contributions is limited so as not to exceed the limits of 
sections 401(a)(17), 402(g) (determined with or without catch-up 
contributions), and 415; or (4) the default election is not applied 
during the period an employee is not permitted to make elective 
contributions pursuant to section 414(u)(12)(B)(ii).
    Section 401(k)(13)(C)(iv) provides an exception from the 
application of the default election under a QACA for eligible employees 
who were eligible to participate in the CODA (or a predecessor CODA) 
immediately before the effective date of the QACA and who have an 
election in effect on that effective date. Reflecting that provision, 
Sec.  1.401(k)-3(j)(1)(iii) provides that an automatic contribution 
arrangement does not fail to be a QACA merely because the default 
election is not applied to an employee who was eligible under the CODA 
(or a predecessor arrangement) immediately prior to the effective date 
of the QACA and on that effective date had an affirmative election in 
effect (that remains in effect) to have elective contributions made on 
the employee's behalf (in a specified amount or percentage of 
compensation) or not have elective contributions made on the employee's 
behalf.
    Section 1.401(k)-3(j)(2)(iv) provides that minimum percentages in a 
QACA are determined without regard to whether an employee has continued 
to be eligible to make contributions under the plan. However, Sec.  
1.401(k)-3(j)(2)(iv) provides that a plan is permitted to treat an 
employee who for an entire plan year did not have contributions made 
pursuant to a default election under a QACA as if the employee also had 
not had such contributions for any prior plan year.
2. Eligible Automatic Contribution Arrangements Under Section 414(w)
    Section 414(w) facilitates automatic enrollment by providing relief 
from the distribution restrictions under section 401(k)(2)(B), 
403(b)(7), 403(b)(11), or 457(d)(1)(A) in the case of an eligible 
automatic contribution arrangement (EACA). Under this relief, a plan 
may permit an employee who was automatically enrolled under an EACA to 
take a distribution within a limited period after the initial default 
elective contribution with respect to the employee was made.
    Under section 414(w)(1) and (2), an applicable employer plan \4\ 
that contains an EACA is permitted to allow employees to elect to 
receive a distribution, called a permissive withdrawal, equal to the 
amount of default elective contributions (and attributable earnings) 
made with respect to the employee beginning with the first payroll 
period to which the EACA

[[Page 3094]]

applies to the employee and ending with the effective date of the 
election. The election must be made within 90 days after the date of 
the first default elective contribution with respect to the employee 
under the arrangement.\5\
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    \4\ Section 414(w)(5) defines an applicable employer plan for 
purposes of section 414(w) as a trust described in section 401(a) 
that is exempt from tax under section 501(a), a plan described in 
section 403(b), a section 457(b) plan that is maintained by a 
governmental employer described in section 457(e)(1)(A), a 
simplified employee pension the terms of which provide for a salary 
reduction arrangement described in section 408(k)(6), or a SIMPLE 
individual retirement account described in section 408(p).
    \5\ Section 414(w)(1)(A) and (B) provides that the amount of the 
distribution is includible in the gross income of the employee for 
the taxable year in which the distribution is made but is not 
subject to the additional income tax on early distributions under 
section 72(t).
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    Section 414(w)(3) defines an EACA as an arrangement under which: 
(1) a participant may elect to have the employer make payments as 
contributions under the plan on behalf of the participant, or to the 
participant directly in cash; (2) the participant is treated as having 
elected to have the employer make such contributions in an amount equal 
to a uniform percentage of compensation provided under the plan until 
the participant specifically elects not to have such contributions made 
(or specifically elects to have such contributions made at a different 
percentage); and (3) participants are provided a notice that satisfies 
the requirements of section 414(w)(4).
    Section 414(w)(4) provides that the administrator of a plan that 
includes an EACA must, within a reasonable period before each plan 
year, provide each employee to whom the arrangement applies for the 
plan year written notice of the employee's rights and obligations under 
the arrangement that is sufficiently accurate and comprehensive to 
apprise the employee of the employee's rights and obligations. Section 
414(w)(4)(A)(ii) requires that the notice be written in a manner 
calculated to be understood by the average employee to whom the 
arrangement applies. Section 414(w)(4)(B) provides that the notice must 
explain: (1) the employee's rights under the arrangement to elect not 
to have elective contributions made on the employee's behalf (or to 
elect to have contributions made at a different percentage), and (2) 
how contributions made under the arrangement will be invested in the 
absence of any investment decision by the employee. In addition, the 
employee must be given a reasonable period of time after receipt of the 
notice and before the first elective contribution is made to make an 
election described in the notice.
    The Treasury Department and the IRS issued a regulation under 
section 414(w) on February 24, 2009 (TD 9447, 74 FR 8200). Section 
1.414(w)-1(b)(2) includes rules that address the uniform percentage 
requirement of section 414(w)(3)(B), including rules that incorporate 
the exceptions to the uniform percentage requirement for a default 
elective contribution for a QACA set forth in Sec.  1.401(k)-
3(j)(2)(iii).

II. New Automatic Enrollment Requirements and Other Changes Regarding 
EACAs Under the SECURE 2.0 Act

A. Section 101 of the SECURE 2.0 Act

    Section 101 of the SECURE 2.0 Act adds section 414A to the Code. 
Under section 101(c) of the SECURE 2.0 Act, the amendments made by 
section 101 apply to plan years beginning after December 31, 2024.
    Section 414A(a)(1) of the Code generally provides that a CODA will 
not be treated as a qualified CODA described in section 401(k) unless 
the CODA satisfies the automatic enrollment requirements of section 
414A(b). Similarly, section 414A(a)(2) generally provides that an 
annuity contract otherwise described in section 403(b) that is 
purchased under a salary reduction agreement will not be treated as 
described in section 403(b) unless the salary reduction agreement 
satisfies the automatic enrollment requirements of section 414A(b).
    Under section 414A(b)(1), a CODA or salary reduction agreement 
satisfies the automatic enrollment requirements of section 414A(b) if 
the CODA or salary reduction agreement is an EACA (as defined in 
section 414(w)(3)) that satisfies the additional requirements of 
section 414A(b)(2) through (4). Section 414A(b)(2) requires the EACA to 
allow employees to make permissible withdrawals (as defined in section 
414(w)(2)). Under section 414A(b)(3)(A)(i), the minimum initial default 
contribution percentage under the EACA must be at least 3 percent (but 
not more than 10 percent), and under section 414A(b)(3)(A)(ii), the 
default contribution percentage must increase by one percentage point 
for each plan year beginning after each completed year of participation 
under the EACA, up to a maximum default contribution percentage of at 
least 10 percent (but not more than 15 percent).\6\ Section 414A(b)(4) 
provides that amounts contributed pursuant to the EACA for which no 
investment is elected by a participant must be invested in accordance 
with the requirements of 29 CFR 2550.404c-5 \7\ (or any successor 
regulations).
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    \6\ Section 414A(b)(3)(B) provides a reduced maximum default 
contribution percentage of 10 percent for certain plans with respect 
to certain plan years.
    \7\ The requirements of 29 CFR 2550.404c-5 relate to investments 
in qualified default investment alternatives.
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    Section 414A(c) sets forth certain exceptions to the requirements 
of section 414A(a). In general, section 414A(a) does not apply to any: 
(1) SIMPLE 401(k) plan described in section 401(k)(11); (2) qualified 
CODA established before December 29, 2022 (the date of enactment of the 
SECURE 2.0 Act); (3) section 403(b) plan established before December 
29, 2022; (4) governmental plan described in section 414(d); (5) church 
plan described in section 414(e); (6) plan maintained by a new business 
as described in section 414A(c)(4)(A); or (7) plan maintained by a 
small business as described in section 414A(c)(4)(B).
    Certain of the exceptions in section 414A(c) include special rules 
for plans maintained by more than one employer. Section 414A(c)(2)(B) 
provides rules that apply in the case of an employer that, after 
December 29, 2022, adopts a plan maintained by more than one employer. 
Under that provision, the exception to section 414A(a) for a qualified 
CODA or 403(b) plan established before December 29, 2022, will not 
apply to that adopting employer, and the rules of section 414A(a) will 
apply with respect to that employer as if the plan were a single plan. 
In addition, under section 414A(c)(4)(C), the new business and small 
business exceptions to section 414A(a) are applied separately to each 
participating employer in a plan maintained by more than one employer, 
and all participating employers to which section 414A(a) applies (after 
the application of the new business exception in section 414A(c)(4)(A) 
and the small business exception in section 414A(c)(4)(B)) are treated 
as maintaining a separate plan for purposes of section 414A.
    On December 20, 2023, the Treasury Department and the IRS released 
Notice 2024-2, 2024-2 IRB 316, which provides initial guidance on 
certain provisions of the SECURE 2.0 Act. Section II.A of Notice 2024-2 
provides initial guidance in the form of questions and answers 
regarding certain issues related to section 414A of the Code that 
primarily addresses the scope of the exceptions under section 
414A(c)(2) to the requirements of section 414A.
    Q&A A-1 of Notice 2024-2 provides that, for purposes of section 
414A(c)(2)(A)(i) (the exception to section 414A(a) for a qualified CODA 
established before December 29, 2022), a qualified CODA is established 
on the date plan terms providing for the CODA are adopted initially, 
even if the plan terms providing for the CODA are effective after the 
adoption date.

[[Page 3095]]

    Q&A A-2 of Notice 2024-2 provides rules that apply in the case of a 
merger of a plan maintained by a single employer that includes a 
qualified CODA established before December 29, 2022 (a pre-enactment 
qualified CODA), with another plan that includes a pre-enactment 
qualified CODA. Under Q&A A-2, the treatment of the qualified CODA 
included in the ongoing plan as a pre-enactment qualified CODA is 
unaffected by the merger (without regard to whether the ongoing plan is 
maintained by a single employer or more than one employer).
    Q&A A-3 of Notice 2024-2 provides that if a plan that includes a 
qualified CODA that was not established before December 29, 2022, is 
merged with a plan that includes a pre-enactment qualified CODA, then, 
after the merger, the qualified CODA included in the ongoing plan 
generally will not be treated as a pre-enactment qualified CODA. 
However, if, in connection with a disposition, acquisition, or other 
transaction described in section 410(b)(6)(C), a plan maintained by a 
single employer that includes a qualified CODA that was not established 
before December 29, 2022, is merged with another plan maintained by a 
single employer that includes a pre-enactment qualified CODA, and the 
plan that includes the pre-enactment qualified CODA is designated as 
the ongoing plan, then the qualified CODA included in the ongoing plan 
continues to be treated as a pre-enactment qualified CODA after the 
merger, provided that the merger occurs by the end of the section 
410(b)(6)(C) transition period.
    Q&A A-3 also provides that if a plan maintained by a single 
employer includes a qualified CODA that was not established before 
December 29, 2022, and is merged into a plan maintained by more than 
one employer that includes a pre-enactment qualified CODA, then the 
qualified CODA included in the ongoing plan would not be treated as a 
pre-enactment qualified CODA with respect to that employer. However, in 
that case, the merger would not affect whether the qualified CODA is 
treated as a pre-enactment qualified CODA with respect to other 
employers that participate in the ongoing plan.
    Q&A A-4 of Notice 2024-2 provides that if a plan that includes a 
qualified CODA is spun off from a plan that includes a pre-enactment 
qualified CODA, the qualified CODA included in the new spun-off plan 
generally is also treated as being a pre-enactment qualified CODA. 
However, if the plan from which the new plan was spun off was a plan 
maintained by more than one employer that was established before 
December 29, 2022, then the qualified CODA included in the spun-off 
plan is treated as a pre-enactment qualified CODA only if the qualified 
CODA in the plan maintained by more than one employer was treated as a 
pre-enactment qualified CODA with respect to the employer sponsoring 
the spun-off plan.
    Q&A A-5 of Notice 2024-2 provides that, in general, the rules of 
section 414A that apply to qualified CODAs also apply to section 403(b) 
plans. However, the exception to section 414A(a) for a section 403(b) 
plan established before December 29, 2022, applies without regard to 
the date of adoption of plan terms that provide for salary reduction 
agreements.
    Q&A A-6 of Notice 2024-2 explains that, unless an exception set 
forth in section 414A(c) applies (for example, the exception for a new 
or small business), section 414A(a) applies to a starter 401(k) 
deferral-only arrangement described in section 401(k)(16)(B), or to a 
safe harbor deferral-only plan described in section 403(b)(16)(B), for 
plan years beginning after December 31, 2024.
    The Treasury Department and the IRS received 12 written comments in 
response to Notice 2024-2 that address the guidance provided in Section 
II.A of the notice. The Treasury Department and the IRS reviewed all 12 
comments, and this preamble addresses those that are relevant and 
within scope for this notice of proposed rulemaking. All written 
comments responding to Notice 2024-2 are available for public 
inspection and copying at www.regulations.gov, and certain of those 
comments that address Section II.A of Notice 2024-2 are discussed in 
the Explanation of Provisions portion of this preamble.

B. SECURE 2.0 Act Changes Regarding EACA Notices

1. Notice Requirements for Unenrolled Participants
    Section 320(b) of the SECURE 2.0 Act adds section 414(bb) to the 
Code, effective for plan years beginning after December 31, 2022. 
Section 414(bb)(1) provides that, with respect to any defined 
contribution plan, no disclosure, notice, or other plan document is 
required to be furnished under the Code to any unenrolled participant 
if the unenrolled participant is furnished: (1) an annual reminder 
notice (as defined in section 414(bb)(3)) of the participant's 
eligibility to participate in the plan and any applicable election 
deadlines under the plan, and (2) any document requested by the 
participant that the participant would be entitled to receive 
notwithstanding section 414(bb).
    Section 414(bb)(2) defines an unenrolled participant as an employee 
who: (1) is eligible to participate in a defined contribution plan, (2) 
has been furnished the summary plan description pursuant to section 
104(b) of ERISA for the plan and any other notices related to 
eligibility under the plan and required to be furnished under the Code 
or ERISA in connection with the participant's initial eligibility to 
participate in the plan, (3) is not participating in the defined 
contribution plan, and (4) satisfies any other criteria as the 
Secretary of the Treasury may determine appropriate, as prescribed in 
guidance issued in consultation with the Secretary of Labor. The last 
sentence of section 414(bb)(2) of the Code provides that any 
eligibility to participate in the plan following any period for which 
the employee was not eligible to participate is to be treated as 
initial eligibility.
    Section 414(bb)(3) provides that the annual reminder notice 
required under section 414(bb)(1) is the notice described in section 
111(c) of ERISA (as added by section 320(a) of the SECURE 2.0 Act).
2. Combining EACA Notices With Other Notices
    Section 127 of the SECURE 2.0 Act provides for the creation of 
pension-linked emergency savings accounts (PLESAs) effective for plan 
years beginning after December 31, 2023. Among other changes, section 
127 of the SECURE 2.0 Act redesignates section 402A(e) of the Code as 
section 402A(f) and adds a new section 402A(e) regarding PLESAs.\8\ 
Section 402A(e)(5)(A) requires the plan administrator of a plan with a 
PLESA feature to furnish initial and annual notices to participants 
describing certain information regarding the PLESA that meet the 
requirements of section 402A(e)(5)(B). Section 402A(e)(5)(C) permits 
the initial and annual notices required under section 402A(e)(5)(A) to 
be included with any other notice under ERISA, including under section 
404(c)(5)(B) or 514(e)(3) of ERISA, or under section 401(k)(13)(E) or 
414(w)(4) of the Code, if the other notice

[[Page 3096]]

is provided to the participant at the time required for that notice.
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    \8\ On January 12, 2024, the Treasury Department and the IRS 
released Notice 2024-22, 2024-6 IRB 662, which provides initial 
guidance regarding anti-abuse rules under section 402A(e)(12) of the 
Code, as added by section 127 of the SECURE 2.0 Act, and also 
addresses whether Rev. Rul. 74-55, 1974-1 CB 89, and Rev. Rul. 74-
56, 1974-1 CB 90, are applicable to PLESAs.
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    The Department of Labor has provided frequently asked questions 
regarding PLESAs, including with respect to the permitted consolidation 
of notices under section 801(d)(3)(C) of ERISA (which is a parallel 
provision to section 402A(e)(5)(C) of the Code). See Q&A-18 of ``FAQs: 
Pension-Linked Emergency Savings Accounts,'' available at www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts.
    Section 341 of the SECURE 2.0 Act permits a plan (as defined in 
section 3 of ERISA) to consolidate two or more of the notices required 
under sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections 
401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code into a single 
notice, provided that the combined notice satisfies certain 
requirements. Section 341 of the SECURE 2.0 Act does not prevent the 
consolidation of any other notices required under ERISA or the Code to 
the extent otherwise permitted by the Secretary of Labor or the 
Secretary of the Treasury (or their delegates), as applicable.
    On October 24, 2007, the Department of Labor published in the 
Federal Register (72 FR 60452) a final regulation, 29 CFR 2550.404c-5, 
providing relief from certain fiduciary responsibilities under ERISA 
for investments made on behalf of participants or beneficiaries who 
fail to direct the investment of assets in their individual accounts. 
The preamble to that final regulation indicates that the Department of 
Labor anticipates that the notice requirements of sections 404(c)(5)(B) 
and 514(e)(3) of ERISA and sections 401(k)(13)(E) and 414(w)(4) of the 
Code could be satisfied in a single disclosure document. See 72 FR 
60455 (regarding the notice requirements under section 404(c)(5)(B) of 
ERISA and sections 401(k)(13)(E) and 414(w)(4) of the Code) and 72 FR 
60466 (regarding the notice requirements under sections 404(c)(5)(B) 
and 514(e)(3) of ERISA).
    To aid plan sponsors for the 2008 plan year (the first plan year 
that a plan could have included a QACA or EACA), the IRS coordinated 
with the Department of Labor to post a sample ``Automatic Enrollment 
Notice,'' available at www.irs.gov/pub/irs-tege/sample_notice.pdf. This 
sample notice is intended to satisfy the notice requirements of 
sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections 401(k)(13)(E) 
and 414(w)(4) of the Code.
    On April 29, 2008, the Department of Labor issued Field Assistance 
Bulletin 2008-03. Q&A-10 of Field Assistance Bulletin 2008-03 explains 
that the notice required under section 401(k)(12)(D) also may be 
combined with the notice required under section 404(c)(5)(B) of ERISA.
    Q&A-18 of ``FAQs: Pension-Linked Emergency Savings Accounts'' 
explains that, with respect to section 341 of the SECURE 2.0 Act, the 
Department of Labor retains its position regarding the consolidation of 
notices required under sections 404(c)(5)(B) and 514(e)(3) of ERISA and 
sections 401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code. Q&A-
18 also explains that, under section 801(d)(3)(C) of ERISA, the initial 
and annual notices that must be furnished to PLESA participants may be 
included with any other notice under ERISA, including under section 
404(c)(5)(B) or 514(e)(3) of ERISA, or under section 401(k)(13)(E) or 
414(w)(4) of the Code, if such other notice is provided to the 
participant at the time required for such notice.

Explanation of Provisions

I. Proposed Sec.  1.414A-1

A. General Rule

    In accordance with section 414A(a)(1), the proposed regulation 
generally would provide that a CODA will not be treated as a qualified 
CODA unless the plan that includes the CODA provides that any cash or 
deferred election under the CODA must satisfy the automatic enrollment 
requirements of section 414A. The proposed regulation would clarify 
that the determination of whether a CODA fails to satisfy these 
automatic enrollment requirements (and, therefore, fails to be a 
qualified CODA) is made on a plan-year basis.
    Similarly, in accordance with section 414A(a)(2), the proposed 
regulation generally would provide that an annuity contract described 
in section 403(b) that is purchased pursuant to a salary reduction 
agreement will not be treated as purchased under a section 403(b) plan 
for a plan year unless the plan provides that any salary reduction 
agreement under the plan must satisfy the automatic enrollment 
requirements of section 414A.

B. Automatic Enrollment Requirements

1. In General
    As described in section II.A of the Background portion of this 
preamble, section 414A(a) generally requires a qualified CODA, or an 
annuity contract described in section 403(b) that is purchased under a 
salary reduction agreement, to satisfy the automatic enrollment 
requirements of section 414A(b), which require the CODA or salary 
reduction agreement to be an EACA, as described in section 414(w)(3), 
that meets the requirements of section 414A(b)(2) through (4). Section 
414A(c) sets forth exceptions to the requirements of section 414A(a) 
for certain plans.
    The Treasury Department and the IRS received comments in response 
to Notice 2024-2 requesting that the guidance provide that certain 
categories of employees need not be covered by an EACA for section 
414A(b) to be satisfied. However, although section 414A(c) provides 
several exceptions to the requirements of section 414A(a) for certain 
types of plans, there is no provision in section 414A (or in section 
101(c) of the SECURE 2.0 Act) that excludes any category of employee 
from the automatic enrollment requirements of section 414A(b) of the 
Code if the plan is subject to section 414A(a). Accordingly, the 
proposed regulation would clarify that a CODA or salary reduction 
agreement under a plan satisfies the automatic enrollment requirements 
of section 414A only if the plan provides for an EACA that covers all 
employees in the plan who are eligible to elect to have contributions 
made on their behalf under the CODA or pursuant to the salary reduction 
agreement (including long-term, part-time employees described in 
section 401(k)(15) of the Code or section 202(c) of ERISA).
    Commenters also requested guidance on whether an employee must be 
automatically enrolled if the employee was eligible to participate in a 
CODA or salary reduction agreement included in a plan before the CODA 
or salary reduction agreement became subject to the automatic 
enrollment requirements of section 414A(b). In response to these 
comments, the proposed regulation would provide an exception to 
automatic enrollment for certain employees who are eligible to make a 
cash or deferred election under a CODA or to enter into a salary 
reduction agreement that is comparable to the exception for certain 
current employees under a QACA, as set forth in Sec.  1.401(k)-
3(j)(1)(iii). Specifically, the proposed regulation would clarify that 
an EACA will not fail to satisfy section 414A merely because the 
default election under the EACA does not apply to an employee who, on 
the date the plan is first required to satisfy the automatic enrollment 
requirements of the proposed regulation, had an affirmative election in 
effect (that remains in effect) to have contributions made on the 
employee's behalf under a cash or deferred election or a salary

[[Page 3097]]

reduction agreement (in a specified amount or percentage of 
compensation) or not have contributions made on the employee's behalf 
under a cash or deferred election or a salary reduction agreement.
2. Permissive Withdrawals
    In accordance with section 414A(b)(2), the proposed regulation 
would provide that an EACA satisfies the automatic enrollment 
requirements of section 414A only if the plan that includes the EACA 
provides that any employee who has default elective contributions made 
under the EACA may elect to make a permissible withdrawal, as defined 
in section 414(w)(2) and described in Sec.  1.414(w)-1(c) (that is, a 
withdrawal of default elective contributions and earnings that 
satisfies certain timing and amount requirements).
3. Contribution Requirements
    To reflect the minimum contribution percentage requirements of 
section 414A(b)(3), the proposed regulation would provide that an EACA 
satisfies the automatic enrollment requirements of section 414A only if 
the default election made on behalf of an employee under the EACA is 
equal to a uniform percentage of the employee's compensation that is 
subject to a cash or deferred election or salary reduction arrangement 
under the plan. The default election would not apply if the employee 
affirmatively elects to have contributions made in a different amount 
on the employee's behalf (in a specified amount or percentage of 
compensation) or not have any contributions made on the employee's 
behalf, under a cash or deferred election or a salary reduction 
agreement.
    In accordance with section 414A(b)(3)(A)(i), the proposed 
regulation would provide that the contribution percentage under the 
default election for each employee's initial period must be a uniform 
percentage that is not less than 3 percent and not more than 10 
percent. The proposed regulation would clarify that an employee's 
initial period (that is, the employee's ``first year of participation'' 
under section 414A(b)(3)(A)(i)) would begin when the employee is first 
eligible to elect to have contributions made on the employee's behalf 
under the plan (or if later, when the plan is first required to satisfy 
the automatic enrollment requirements of section 414A), and the 
employee's initial period would end on the last day of the following 
plan year.
    As described in section II.A of the Background portion of this 
preamble, section 414A(b)(3)(A)(ii) generally requires automatic 
increases of one percentage point to an employee's minimum default 
contribution percentage for each plan year beginning after each 
completed year of participation under the EACA, up to a maximum default 
contribution percentage of at least 10 percent (but not more than 15 
percent). The proposed regulation would provide that, for each plan 
year beginning after an employee's initial period, the percentage 
contribution under the default election must be increased by one 
percentage point until the percentage is at least 10 percent. The 
proposed regulation also would provide that the percentage may not 
exceed 15 percent (or the lower percentage specified in section 
414A(b)(3)(B), if applicable).
    For purposes of satisfying the uniform percentage requirement of 
section 414A(b)(3)(A), the proposed regulation would adopt the 
exceptions from the uniform percentage requirement of section 
414(w)(3)(B), which are based on the similar exceptions from the 
uniform percentage requirement for a QACA under Sec.  1.401(k)-
3(j)(2)(iii). Specifically, the proposed regulation would clarify that 
an EACA does not fail to satisfy the uniform percentage requirement 
merely because: (1) the percentage used for the default election varies 
based on the number of years (or portions of years) since the beginning 
of the initial period for an employee, (2) the rate of contributions 
under a cash or deferred election or salary reduction agreement that is 
in effect for an employee immediately prior to the date that the 
default election under the proposed regulation first applies to the 
employee is not reduced, (3) the rate of contributions under a cash or 
deferred election or salary reduction agreement is limited so as not to 
exceed certain applicable limits under the Code, or (4) the default 
election is not applied during the period an employee is not permitted 
to have contributions made on the employee's behalf under a cash or 
deferred election or salary reduction agreement under section 
414(u)(12)(B)(ii), which provides for a six-month suspension of 
elective deferrals (and employee contributions) if an individual elects 
to receive a distribution by reason of the individual being treated as 
having been severed from employment while performing military service.
    The proposed regulation would provide rules, based on the rules for 
a QACA under Sec.  1.401(k)-3(j)(2)(iv), that would address the default 
percentage that would apply for an employee who did not have default 
elective contributions made for an entire plan year. The proposed 
regulation would provide different rules that could be used depending 
on whether the employee was not eligible to have contributions made on 
the employee's behalf under a CODA or salary reduction agreement or had 
made an affirmative election to have contributions made in a different 
amount (including an election not to have contributions made).
    Specifically, the proposed regulation would permit a plan to 
provide that if, after an employee's initial period began, the employee 
did not have default elective contributions made for an entire plan 
year, then the employee's initial period is redetermined. If no default 
elective contributions were made solely because the employee was not 
eligible to elect to have contributions made on the employee's behalf 
under a cash or deferred election or salary reduction agreement for 
that entire plan year, then a plan would be permitted to provide that 
the employee's initial period would be redetermined so that it begins 
on the date the employee is again eligible to elect to have 
contributions made on the employee's behalf under the plan. An employer 
would likely adopt this provision to determine the default contribution 
rate that applies to an employee who was rehired more than one plan 
year after the employee terminated employment.
    However, if no default elective contributions were made solely 
because the employee made an affirmative election to have contributions 
made on the employee's behalf under a cash or deferred election or 
salary reduction agreement in a different amount (including an election 
not to have contributions made), then a plan would be permitted to 
provide that the employee's initial period would be redetermined so 
that it begins on any date specified under the plan that is later than 
the date the employee's original initial period ended. For example, a 
plan is permitted to be amended to provide that, as of a specific date, 
the default election will apply to all employees who previously made an 
affirmative election that has been in effect for a period of at least 
one plan year to have contributions made on behalf of the employees 
under the plan at a rate that is below the uniform percentage that 
applies during an initial period (so that the uniform percentage that 
applies during the initial period will apply unless the employee makes 
a new affirmative election). An employer might adopt such an amendment 
to facilitate an increase in the rate of

[[Page 3098]]

contributions made on behalf of its employees.
4. Investment Requirements
    In accordance with the investment requirements of section 
414A(b)(4), the proposed regulation would provide that an EACA 
satisfies the automatic enrollment requirements of section 414A only if 
amounts contributed pursuant to the EACA, and for which no investment 
is elected by the employee, are invested in accordance with the 
requirements of 29 CFR 2550.404c-5 (or any successor regulations).

C. Exceptions for Certain Types of Plans and Businesses

1. SIMPLE 401(k) Plans
    In accordance with section 414A(c)(1), the proposed regulation 
would provide that the automatic enrollment requirements of section 
414A do not apply to any SIMPLE 401(k) plan (as described in section 
401(k)(11) and Sec.  1.401(k)-4).
2. Governmental and Church Plans
    In accordance with section 414A(c)(3), the proposed regulation 
would provide that the automatic enrollment requirements of section 
414A do not apply to any governmental plan (within the meaning of 
section 414(d)) or any church plan (within the meaning of section 
414(e)).
3. New and Small Businesses
    Section 414A(c)(4)(A) provides that the automatic enrollment 
requirements of section 414A(a) do not apply to any qualified CODA, or 
any annuity contract purchased under a plan, while the employer 
maintaining the plan (and any predecessor employer) has been in 
existence for less than 3 years. However, section 414A does not specify 
the date as of which a plan must satisfy the automatic enrollment 
requirements of section 414A(b) if the exception for new businesses 
under section 414A(c)(4)(A) ceases to apply to the plan.
    In response to Notice 2024-2, the Treasury Department and the IRS 
received a comment requesting clarification that a plan will not fail 
to satisfy the automatic enrollment requirements of section 414A(b) if 
the plan includes an EACA no later than the first plan year that begins 
on or after the third anniversary of the employer's existence. The 
Treasury Department and the IRS agree that a plan should not be 
required to implement an EACA in the middle of a plan year. Therefore, 
the proposed regulation would clarify that the automatic enrollment 
requirements of section 414A do not apply to a plan for a plan year if, 
as of the beginning of the plan year, the employer maintaining the plan 
(aggregated with any predecessor employer) has been in existence for 
less than 3 years.
    Section 414A(c)(4)(B) provides that the automatic enrollment 
requirements of section 414A(a) do not apply to any qualified CODA, or 
any annuity contract purchased under a plan, earlier than the date that 
is 1 year after the close of the first taxable year of the employer 
maintaining the plan with respect to which that employer normally 
employed more than 10 employees. However, section 414A(c)(4)(B) does 
not specify any method for counting the number of employees for this 
purpose.
    In response to Notice 2024-2, the Treasury Department and the IRS 
received comments requesting clarification regarding the method for 
counting employees for purposes of the small business exception under 
section 414A(c)(4)(B). One commenter raised the issue of how to count 
employees for this purpose but did not suggest a specific method. 
Another commenter recommended that the Treasury Department and the IRS 
adopt a monthly averaging approach, which the commenter explained would 
be similar to the approach used for purposes of section 4980H. However, 
section 4980H does not use the phrase ``normally employed''; instead, 
that phrase is used in section 4980B(d)(1). Therefore, the proposed 
regulation would clarify that the number of employees that the employer 
normally employs for a taxable year is determined using the rules of 
Q&A-5 of Sec.  54.4980B-2.
    Similar to the clarification provided in the proposed regulation 
for new businesses, the proposed regulation would clarify that the 
automatic enrollment requirements of section 414A do not apply to any 
qualified CODA, or any annuity contract purchased under a section 
403(b) plan, before the first plan year that begins at least 12 months 
after the close of the first taxable year of the employer maintaining 
the plan with respect to which that employer normally employed more 
than 10 employees.
    As described in section II.A of the Background portion of this 
preamble, section 414A(c)(4)(C) provides special rules for the new and 
small business exceptions in the case of ``a plan maintained by more 
than 1 employer.'' The proposed regulation would clarify that the 
phrase ``a plan maintained by more than 1 employer'' means a multiple 
employer plan.\9\ Accordingly, the proposed regulation would reflect 
the provisions of section 414A(c)(4)(C) by providing that, in the case 
of a multiple employer plan, the exceptions for new and small 
businesses apply on an employer-by-employer basis. Thus, if an employer 
participating in a multiple employer plan is a new or small business, 
it would be exempt from the automatic enrollment requirements of 
section 414A, but that exemption would have no impact on whether 
section 414A applies to the employees of the other participating 
employers.
---------------------------------------------------------------------------

    \9\ This interpretation is consistent with the heading of 
section 414A(c)(4)(C) (``Treatment of multiple employer plans'') and 
the interpretation in Sec.  1.413-2(a)(2) and (3) of the 
substantially identical language in section 413(c) (``a plan 
maintained by more than one employer'').
---------------------------------------------------------------------------

D. Exceptions for Plans Established Before the Enactment of Section 
414A

1. In General
    As described in section II.A of the Background portion of this 
preamble, section 414A(c)(2)(A) provides an exception from the 
requirements of section 414A(a) in the case of a qualified CODA, or 
section 403(b) plan, that is established before December 29, 2022, and 
Q&A A-1 and Q&A A-5 of Notice 2024-2 provide guidance with respect to 
the date that a qualified CODA or section 403(b) plan is established 
for purposes of section 414A(c)(2)(A). Notice 2024-2 refers to a 
qualified CODA or section 403(b) plan that is eligible for the 
exception under section 414A(c)(2)(A) as a pre-enactment qualified CODA 
or pre-enactment section 403(b) plan, and this Explanation of 
Provisions uses the term pre-enactment plan to encompass both pre-
enactment qualified CODAs and pre-enactment section 403(b) plans.
    The proposed regulation would reflect the provisions of section 
414A(c)(2)(A)(i) and incorporate the guidance provided in Q&A A-1 of 
Notice 2024-2 by generally providing that the automatic enrollment 
requirements of section 414A do not apply to any plan that includes a 
qualified CODA if the plan terms providing for the qualified CODA were 
adopted initially before December 29, 2022, even if the plan terms 
providing for the CODA are effective after that date. The proposed 
regulation also would reflect the provisions of section 
414A(c)(2)(A)(ii) and incorporate the guidance provided in Q&A A-5 of 
Notice 2024-2 by providing that the automatic enrollment requirements 
of section 414A do not apply to any section 403(b) plan adopted 
initially before December 29, 2022, without regard to the date of 
adoption of plan terms providing for salary reduction agreements.

[[Page 3099]]

2. Merger of Plans Established Before the Enactment of Section 414A
    With respect to the merger of two pre-enactment plans (neither of 
which is a multiple employer plan) or the merger of a pre-enactment 
plan that is not a multiple employer plan with a pre-enactment multiple 
employer plan, the proposed regulation would incorporate the guidance 
provided in Q&A A-2 of Notice 2024-2 (which, under Q&A A-5 of Notice 
2024-2, also applies to section 403(b) plans). Thus, the plan after the 
merger will be treated as a pre-enactment plan.
    The proposed regulation generally would extend the guidance 
provided in Q&A A-2 of Notice 2024-2 to the merger of two pre-enactment 
multiple employer plans. However, the proposed regulation would clarify 
that a merger involving a multiple employer plan will not affect 
whether the merged plan is treated as a pre-enactment plan with respect 
to any employer that maintained the multiple employer plan prior to the 
merger.
3. Merger of Plan Established on or After the Enactment of Section 414A 
With a Plan Established Before the Enactment of Section 414A
    With respect to the merger of a plan that is not a pre-enactment 
plan and a pre-enactment plan (neither of which is a multiple employer 
plan), the proposed regulation generally would incorporate the guidance 
provided in Q&A A-3 of Notice 2024-2 (which, under Q&A A-5 of Notice 
2024-2, also applies to section 403(b) plans). With respect to the 
guidance provided in Q&A A-3 of Notice 2024-2 regarding a plan merger 
in connection with a transaction described in section 410(b)(6)(C), the 
proposed regulation generally would incorporate that guidance by 
providing that a pre-enactment plan will continue to be treated as a 
pre-enactment plan after a merger with a plan that is not a pre-
enactment plan if there is a transaction described in Sec.  1.410(b)-
2(f), the pre-merger pre-enactment plan is designated as the ongoing 
plan, and the plan merger occurs within the transition period described 
in section 410(b)(6)(C)(ii). In addition, the proposed regulation would 
expand the rule in Q&A A-3 of Notice 2024-2 to address certain 
situations in which a plan maintained by a single employer that is not 
a pre-enactment plan is merged into a multiple employer plan. Under 
this expansion, the multiple employer plan would be treated as a pre-
enactment plan with respect to the employer that sponsored the merged-
in plan if, with respect to the participating employer that engaged in 
the transaction, the multiple employer plan was treated as a pre-
enactment plan before the transaction. As is the case of any merger 
involving a multiple employer plan, the merger would not affect whether 
the multiple employer plan is treated as a pre-enactment plan with 
respect to any other employer.
    Under section 410(b)(6)(C)(ii), the transition period begins on the 
date of the change in members of a controlled group (as described in 
section 414(b), (c), (m), or (o)) and ends on the last day of the first 
plan year beginning after the date of that change. In response to 
Notice 2024-2, one commenter requested that the guidance provided in 
Q&A A-3 be modified to extend the time period for a plan merger until 
the end of the first plan year that begins after the end of the section 
410(b)(6)(C) transition period. The proposed regulation would not 
extend the time period set forth in Q&A A-3 of Notice 2024-2 because 
that is the time period specified in the Code for an employer to 
implement changes to its plans that may be needed following a 
transaction described in section 410(b)(6)(C).
    With respect to a merger of a multiple employer plan that is a pre-
enactment plan with a multiple employer plan that is not a pre-
enactment plan, the proposed regulation would clarify the guidance 
provided in Q&A A-3 of Notice 2024-2 by providing that the merger will 
not affect whether the merged plan is treated as a pre-enactment plan 
with respect to any employer that maintained either multiple employer 
plan prior to the merger.
4. Treatment of Adoption of, or Merger With, a Multiple Employer Plan
    As described in section II.A of the Background portion of this 
preamble, section 414A(c)(2)(B) provides special rules that apply in 
the case of an employer that adopts, after December 29, 2022, a plan 
maintained by more than one employer. Consistent with the 
interpretation of the statutory phrase ``a plan maintained by more than 
1 employer'' in section 414A(c)(4)(C), as described in section I.C.3 of 
this Explanation of Provisions, the proposed regulation would clarify 
that the phrase ``a plan maintained by more than one employer'' in 
section 414A(c)(2)(B) means a multiple employer plan. Thus, the 
proposed regulation would provide that if an employer adopts a multiple 
employer plan after December 29, 2022, then, with respect to that 
employer, the multiple employer plan will not be treated as a pre-
enactment plan. However, this treatment would not affect employers who 
adopted the multiple employer plan on or before December 29, 2022.
    With respect to the merger of a plan (other than a multiple 
employer plan) with a multiple employer plan after December 29, 2022, 
the proposed regulation generally would incorporate the guidance 
provided in Q&A A-2 and Q&A A-3 of Notice 2024-2 (which, under Q&A A-5 
of Notice 2024-2, also applies to section 403(b) plans). Thus, for 
example, if an employer merged a plan that was not a pre-enactment plan 
into a pre-enactment multiple employer plan after December 29, 2022, 
the multiple employer plan generally would not be treated as a pre-
enactment plan with respect to that employer after the merger.
    In response to Notice 2024-2, the Treasury Department and the IRS 
received a number of comments expressing concern that, in the case of 
an employer maintaining a pre-enactment plan that is merged into a 
multiple employer plan that was established after December 29, 2022, 
the multiple employer plan would not be treated as a pre-enactment plan 
with respect to that employer after the merger. The comments requested 
guidance providing that if a pre-enactment plan is merged into a 
multiple employer plan, then the merged-in plan does not lose its pre-
enactment status with respect to the employer that maintained the 
merged-in plan regardless of whether the multiple employer plan was 
established before or after December 29, 2022. In response to these 
comments, the proposed regulation would provide that, if an employer 
maintains a pre-enactment plan that is merged into a multiple employer 
plan after December 29, 2022, then the post-merger multiple employer 
plan will be treated as a pre-enactment plan with respect to that 
employer. This rule would apply regardless of the date of establishment 
of the multiple employer plan.
    The proposed regulation also would clarify that the special rule 
set forth in section 414A(c)(2)(B) regarding the adoption of a multiple 
employer plan after December 29, 2022, applies on an employer-by-
employer basis. Thus, under the proposed regulation, neither an 
employer's adoption of a multiple employer plan nor a merger of an 
employer's plan into a multiple employer plan after December 29, 2022, 
would affect whether the multiple employer plan is treated as a pre-
enactment plan with respect to any other employer maintaining the plan.

[[Page 3100]]

5. Plan Spin-Off
    The proposed regulation would incorporate the guidance provided in 
Q&A A-4 of Notice 2024-2 by providing that if a portion of a pre-
enactment plan is spun off from that plan, the resulting spun-off plan 
will be treated as a pre-enactment plan if either the plan from which 
the spin-off occurred was not a multiple employer plan, or the plan 
from which the spin-off occurred was a multiple employer plan that was 
treated as a pre-enactment plan with respect to the employer 
maintaining the spun-off plan.
6. Other Plan Amendments
    In response to Notice 2024-2, the Treasury Department and the IRS 
received comments requesting guidance on whether changes to a plan's 
design or other plan amendments would affect the date the plan was 
established for purposes of section 414A(c)(2)(A). In response to these 
comments, the proposed regulation would clarify that a plan will not 
fail to be a pre-enactment plan merely because the plan is amended, 
provided that the amendment is not an amendment relating to an adoption 
of a multiple employer plan or a plan merger. This rule would apply 
even if the plan amendment expands eligibility to participate in the 
CODA (or to enter into a salary reduction agreement) to other employees 
of the employer that maintains the plan or to employees of another 
employer in the employer's controlled group. The proposed regulation 
also would clarify that if a pre-enactment plan is merged with a plan 
that does not include a CODA or permit any salary reduction agreements, 
then the merged plan will continue to be a pre-enactment plan after the 
merger.
    In response to Notice 2024-2, the Treasury Department and the IRS 
also received comments requesting guidance on whether a change in a 
plan's service provider would affect the date the plan was established 
for purposes of section 414A(c)(2)(A). Generally, a mere change in a 
plan's recordkeeper would not necessitate an amendment to the plan. 
However, if a plan's change of recordkeeper or any similar change 
required a plan amendment that does not relate to the adoption of a 
multiple employer plan or a plan merger, then, under the proposed 
regulation, the amendment would not cause the plan to fail to be a pre-
enactment plan.

E. Applicability Date

1. Statutory Applicability Date
    In accordance with section 101(c) of the SECURE 2.0 Act, the 
proposed regulation would provide that section 414A applies to plan 
years beginning after December 31, 2024.
2. Regulatory Applicability Date
    The proposed regulation would apply to plan years that begin more 
than 6 months after the date that final regulations under section 414A 
are issued. For earlier plan years, a plan would be treated as having 
complied with section 414A if the plan complies with a reasonable, good 
faith interpretation of section 414A.
    As explained in section I.B.1 of this Explanation of Provisions, 
the proposed regulation would require an EACA to cover all employees in 
the plan who are eligible to elect to have contributions made on their 
behalf for the automatic enrollment requirements of the proposed 
regulation to be satisfied. If a CODA or section 403(b) plan that 
provides for salary reduction agreements becomes subject to the 
requirements of section 414A(a) as of the first day of the plan year 
beginning after December 31, 2024 (2025 plan year), but employees who 
became eligible to participate in the CODA or to enter into a salary 
reduction agreement before the first day of the 2025 plan year (and who 
do not have affirmative elections in effect on that date) are not 
covered under the EACA, then those employees would have to be covered 
under the EACA on the first day of the first plan year that the final 
regulations apply to the CODA or to the section 403(b) plan that 
provides for salary reduction agreements (first applicable plan year).
    As a result, under the proposed regulation, unless employees who 
became eligible to participate in the CODA or to enter into a salary 
reduction agreement before the first day of the 2025 plan year have 
affirmative elections in effect on the first day of the first 
applicable plan year, those employees would need to be automatically 
enrolled as of that date in order for the requirements of the 
regulation to be satisfied. In that case, the default contribution 
percentage would be the percentage that would apply under the EACA for 
the first applicable plan year had those employees been automatically 
enrolled starting on the first day of the 2025 plan year. As an 
alternative, the plan terms could reflect the provision in the proposed 
regulation permitting the redetermination of the initial period in the 
case of an employee who did not have default elective contributions 
made for an entire plan year (so that the plan would be permitted to 
provide that the initial contribution percentage that applies to those 
employees is the percentage that would apply under the EACA had the 
initial period for those employees started on the first day of the 
first applicable plan year).

F. Other Matters

1. Multiemployer Plans
    As described in section I.D.4 of this Explanation of provisions, 
the proposed regulation would clarify that, for purposes of section 
414A(c)(2)(B), the phrase ``a plan maintained by more than one 
employer'' means ``a multiple employer plan.'' Thus, the phrase ``a 
plan maintained by more than one employer'' would not be interpreted to 
include a multiemployer plan or a plan maintained by members of a 
controlled group. As a result, under the proposed regulation, a pre-
enactment multiemployer plan would continue to be treated as a pre-
enactment plan with respect to an employer that adopts the plan after 
December 29, 2022, or with respect to an employer that maintains a plan 
that is merged into the multiemployer plan after December 29, 2022 
(regardless of the date the merged-in plan was established). Similarly, 
a pre-enactment plan would continue to be treated as a pre-enactment 
plan with respect to additional members of an employer's controlled 
group if eligibility to participate in the plan is expanded to include 
employees of those employers after December 29, 2022.
2. PLESAs
    The Department of Labor published a request for information 
soliciting public feedback on several sections of the SECURE 2.0 Act in 
the Federal Register (88 FR 54511). In response to comments received, 
this preamble addresses the interaction of the rules for a PLESA and 
the automatic enrollment requirements of section 414A.
    If a plan with a qualified CODA includes a PLESA, then the PLESA is 
part of the CODA. Thus, an affirmative election to contribute to a 
PLESA is an affirmative election to contribute to the CODA. If the plan 
is subject to the automatic enrollment requirements of section 414A, 
then an affirmative election to contribute to a PLESA would be an 
affirmative election under the CODA for purposes of the proposed 
regulation.
    If an employee is automatically enrolled to contribute to a PLESA, 
the investment requirements of section 414A(b)(4) and proposed Sec.  
1.414A-1(c)(4) (which reference the Department of Labor's rules for 
qualified default investment alternatives under 29 CFR 2550.404c-5) 
generally would not be

[[Page 3101]]

satisfied with respect to the automatic contributions to the PLESA.\10\ 
Thus, automatic contributions to the PLESA would not be able to be used 
to satisfy the automatic enrollment requirements under section 414A.
---------------------------------------------------------------------------

    \10\ The Department of Labor published frequently asked 
questions online providing general compliance information under 
ERISA regarding PLESAs providing that, generally, the investment 
option designated for PLESAs cannot be the same as a plan's 
qualified default investment alternative under 29 CFR 2550.404c-
5(e)(4)(i). However, Q&A-15 does indicate that a PLESA's investment 
option could meet the requirements for a qualified default 
investment alternative for a short period of time.
---------------------------------------------------------------------------

II. Section 1.414(w)-1

A. Employees Covered by the EACA

    As explained in section I.B.1 of this Explanation of Provisions, 
proposed Sec.  1.414A-1 would clarify that, in order for a CODA or 
salary reduction agreement under section 403(b) to satisfy the 
automatic enrollment requirements of section 414A, all employees in the 
plan who are eligible to elect to have contributions made on their 
behalf under the CODA or pursuant to a salary reduction agreement must 
be covered by the EACA. Section 1.414(w)-1(b)(1) currently provides 
that an EACA need not cover all employees who are eligible to elect to 
have contributions made on their behalf under the applicable employer 
plan. For consistency with proposed Sec.  1.414A-1, this notice of 
proposed rulemaking would amend Sec.  1.414(w)-1(b)(1) to clarify that 
the section 414A requirement to be covered by an EACA overrides the 
existing rule in the EACA regulations.

B. Special Rules Relating to Notices

1. Unenrolled Participants
    As described in section II.B of the Background portion of this 
preamble, section 320 of the SECURE 2.0 Act adds new section 414(bb) to 
the Code. This notice of proposed rulemaking would reflect section 
414(bb) by amending Sec.  1.414(w)-1 to add a new paragraph under 
which, if the requirements of section 414(bb)(1) are satisfied with 
respect to an unenrolled participant (as defined in section 
414(bb)(2)),\11\ then the requirement to give the section 414(w)(4) 
notice of an employee's rights and obligations does not apply to the 
participant. Thus, an unenrolled participant does not need to be given 
the annual EACA notice, provided that the participant is furnished (1) 
annual reminder notices under section 414(bb)(1)(A), and (2) any 
document requested by the participant (if the participant would be 
entitled to receive the document in the absence of section 414(bb) and 
section 111 of ERISA).
---------------------------------------------------------------------------

    \11\ Section 414(bb)(2) defines an unenrolled participant as an 
employee who: (1) is eligible to participate in a defined 
contribution plan, (2) has been furnished the summary plan 
description pursuant to section 104(b) of ERISA for the plan and any 
other notices related to eligibility under the plan and required to 
be furnished under the Code or ERISA in connection with the 
participant's initial eligibility to participate in the plan, (3) is 
not participating in the defined contribution plan, and (4) 
satisfies any other criteria as the Secretary of the Treasury may 
determine appropriate, as prescribed in guidance issued in 
consultation with the Secretary of Labor.
---------------------------------------------------------------------------

2. Consolidation of Notices
    As described in section II.B of the Background portion of this 
preamble, section 402A(e)(5)(C) of the Code (as added by section 127 of 
the SECURE 2.0 Act) permits the initial and annual notices required 
under section 402A(e)(5)(A) of the Code to be included with any other 
notice under ERISA, including under section 404(c)(5)(B) or 514(e)(3) 
of ERISA, or under section 401(k)(13)(E) or 414(w)(4) of the Code, if 
the other notice is provided to the participant at the time required 
for that notice. In addition, section 341 of the SECURE 2.0 Act permits 
a plan to consolidate two or more of the notices required under 
sections 404(c)(5)(B) and 514(e)(3) of ERISA and sections 
401(k)(12)(D), 401(k)(13)(E), and 414(w)(4) of the Code into a single 
notice, provided that the combined notice satisfies certain 
requirements.
    The proposed amendment to Sec.  1.414(w)-1 would address section 
402A(e)(5)(C) of the Code and section 341 of the SECURE 2.0 Act by 
adding a new paragraph that provides that the EACA notice required 
under Sec.  1.414(w)-1(b)(3) generally may be combined with one or more 
of the notices required under section 404(c)(5)(B), 514(e)(3), or 
801(d)(3)(A) of ERISA and section 401(k)(12)(D) or 401(k)(13)(E) of the 
Code. Consistent with section 341 of the SECURE 2.0 Act, the proposed 
regulation would require that the combined notice include the required 
content, clearly identify the issues addressed therein, be furnished at 
the time and with the frequency required for each notice, be presented 
in a manner that is reasonably calculated to be understood by the 
average plan participant, and not obscure or fail to highlight the 
primary information required for each notice.

Proposed Applicability Date

    Section 1.414A-1 and the amendments to Sec.  1.414(w)-1 are 
proposed to apply to plan years that begin more than 6 months after the 
date that final regulations under section 414A are issued. For a plan 
year beginning after December 31, 2024, but before the applicability 
date of those final regulations, a plan is treated as having complied 
with section 414A if the plan complies with a reasonable, good faith 
interpretation of section 414A.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
requires that a Federal agency obtain the approval of the Office of 
Management and Budget (OMB) before collecting information from the 
public, whether such collection of information is mandatory, voluntary, 
or required to obtain or retain a benefit. A Federal agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection of information displays 
a valid control number.
    The collections of information in these proposed regulations 
contain third-party disclosure requirements that are necessary to 
comply with the statutory requirement under section 414A of the Code 
(which requires certain CODAs or salary reduction agreements to be 
EACAs) and that are necessary if a plan applies section 414(bb) (which 
eliminates certain disclosure and notice requirements for unenrolled 
participants if an annual notice is provided to the unenrolled 
participants). These collections of information generally would be 
provided by businesses or other for-profit institutions, nonprofit 
institutions, organizations, and state or local governments that 
sponsor retirement plans that include EACAs to individuals in order to 
meet the statutory notice requirements for EACAs under section 
414(w)(4).
    The collection of information under proposed Sec.  1.414(w)-1(b)(4) 
related to unenrolled participants is required in order for a plan to 
apply section 414(bb). Section 414(bb) provides that no disclosure, 
notice, or other plan document is required to be furnished under the 
Code to an unenrolled participant if the unenrolled participant is 
furnished an annual reminder notice of the unenrolled participant's

[[Page 3102]]

eligibility to participate in the plan and any applicable election 
deadlines under the plan. In accordance with section 414(bb), the 
proposed regulation would allow unenrolled participants to be furnished 
an annual reminder notice instead of the annual notice required for 
EACAs under section 414(w)(4) and Sec.  1.414(w)-1(b)(3). The burden is 
as follows:
    Estimated number of respondents: 90,000-140,000 plans.
    Estimated frequency of responses: Varies *.

    * The notice would only need to be furnished to unenrolled 
participants once per year, however, plans have multiple unenrolled 
participants within a given year. For calculation purposes, IRS is 
estimating that each employer plan has 35 unenrolled participants 
that could receive the annual notice.

    Estimated average annual burden per respondent: 1 hour*, to draft 
the notice and provide it to unenrolled participants.

    * The IRS estimates that the reporting burden per response would 
not be burdensome because the notice does not need to be customized 
per participant.

    Estimated total annual reporting burden: 90,000-140,000 hours.
    The collections of information in these proposed regulations also 
contain third-party disclosure requirements that are necessary to 
comply with the statutory rule under section 414A, which requires 
certain CODAs and salary reduction agreements to be EACAs (as defined 
in section 414(w)(3)). Under Sec.  1.414(w)-1(b)(3), initial and annual 
written notices must be given to each employee to whom the EACA applies 
of the employee's rights and obligations under the EACA. Proposed Sec.  
1.414A-1 would not change the notice requirements for an EACA under 
Sec.  1.414(w)-1 but would subject certain CODAs and salary reduction 
agreements to the notice requirements for an EACA by requiring those 
CODAs and salary reduction agreements to be EACAs (as required by 
section 414A). This requirement to be an EACA would not affect pre-
enactment plans. IRS anticipates about 16,000 new plans could be 
established within a given year that would not otherwise be EACAs 
except for the requirements of section 414A.
    Estimated number of respondents: 16,000.
    Estimated frequency of responses: Varies *.

    * Notice would need to be given to eligible employees once per 
year. For calculation purposes, IRS is estimating that each employer 
plan has 60 eligible employees that would receive the annual notice.

    Estimated average annual burden per respondent: 1 hour *, to draft 
the notice and provide it to eligible employees.

    * The IRS estimates that the reporting burden per response would 
not be burdensome because the notice does not need to be customized 
per participant.

    Estimated total annual reporting burden: 16,000 hours.
    IRS is soliciting feedback on these third-party disclosure 
requirements and their associated burden. The third-party disclosure 
requirements contained in this notice of proposed rulemaking have been 
submitted to OMB for review in accordance with the Paperwork Reduction 
Act under OMB Control Number 1545-2135. Commenters are strongly 
encouraged to submit public comments electronically. Written comments 
and recommendations for the proposed information collection should be 
sent to www.reginfo.gov/public/do/PRAMain, with copies to the Internal 
Revenue Service. Find this particular information collection by using 
the search function at www.reginfo.gov/public/do/PRAMain. Submit 
electronic submissions for the proposed information collection to the 
IRS via email at [email protected] (indicate REG-100669-24 on the 
Subject line). Comments on the collection of information should be 
received by March 17, 2025. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
Although section 414A provides an exception from the automatic 
enrollment requirements for some small entities, other small entities 
that sponsor section 401(k) or 403(b) plans that are established on or 
after December 29, 2022, may need to provide for automatic enrollment 
in the plans and default cash or deferred or salary reduction elections 
for employees who are otherwise eligible to participate in the plans. 
Automatic enrollment and default elections, and the resulting 
additional contributions to a plan, apply to compensation that 
employees would have otherwise received and do not require additional 
amounts to be paid. Section 414A does not require plans to provide for 
nonelective contributions or matching contributions. Before the 
enactment of section 101 of the SECURE 2.0 Act, plans were permitted, 
but not required, to provide for automatic enrollment. Accordingly, any 
additional recordkeeping or administrative costs resulting from the 
automatic enrollment requirements that apply to certain section 401(k) 
and 403(b) plans sponsored by small entities are not expected to be 
significant. Therefore, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required.
    The Treasury Department and the IRS invite comments on the impacts 
these proposed regulations may have on small entities. Pursuant to 
section 7805(f) of the Code, these proposed regulations will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. The proposed regulations do not propose any rule that would 
include any Federal mandate that may result in expenditures by State, 
local, or Tribal governments, or by the private sector, in excess of 
that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. The proposed

[[Page 3103]]

regulations do not propose rules that would have federalism 
implications, impose substantial direct compliance costs on State and 
local governments that are not required by statute, or preempt State 
law within the meaning of the Executive order. This is because section 
414A, by its terms, does not apply to governmental plans.

Comments and Public Hearing

    Before final regulations are adopted to implement section 414A of 
the Code, or to revise the regulations under section 414(w) to reflect 
changes made by sections 101, 320, and 341 of the SECURE 2.0 Act, 
consideration will be given to comments regarding the notice of 
proposed rulemaking that are submitted timely to the IRS as prescribed 
in this preamble under the ADDRESSES section. The Treasury Department 
and the IRS request comments on all aspects of the proposed 
regulations. Comments specifically are requested on whether guidance is 
needed to define the term ``predecessor employer'' as used in section 
414A(c)(4)(A) of the Code and on the criteria that should apply for an 
individual to be an unenrolled participant under section 414(bb)(2). 
All comments will be made available at www.regulations.gov. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn.
    A public hearing has been scheduled for April 8, 2025, beginning at 
10 a.m. ET in the Auditorium of the Internal Revenue Building, 1111 
Constitution Avenue NW, Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. Participants may alternatively attend the public 
hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments must submit an outline of the topics to 
be addressed and the time to be devoted to each topic by March 17, 2025 
as prescribed in the preamble under the DATES section. A period of 10 
minutes will be allocated to each person for making comments. An agenda 
showing the scheduling of the speakers will be prepared after the 
deadline for receiving outlines has passed. Copies of the agenda will 
be available free of charge at the hearing. If no outline of the topics 
to be discussed at the hearing is received by March 17, 2025, the 
public hearing will be cancelled. If the public hearing is cancelled, a 
notice of cancellation of the public hearing will be published in the 
Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have their names added 
to the building access list. The subject line of the email must contain 
the regulation number REG-100669-24 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-100669-24.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-100669-24 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-100669-24.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
their names added to the building access list. The subject line of the 
email must contain the regulation number REG-100669-24 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-100669-24. Requests to attend the 
public hearing must be received by 5 p.m. ET on April 4, 2025.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number REG-
100669-24 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-100669-24. Requests to attend the public hearing must be received 
by 5 p.m. ET on April 4, 2025.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during the hearing, please contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) by April 3, 2025.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings notices, and other guidance 
cited in this document are published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and are available from the Superintendent of 
Documents, U.S. Government Publishing Office, Washington, DC 20402, or 
by visiting the IRS website at www.irs.gov.

Drafting Information

    The principal authors of these proposed regulations are Christina 
M. Cerasale and Kara M. Soderstrom, of the Office of the Associate 
Chief Counsel (Employee Benefits, Exempt Organizations, and Employment 
Taxes (EEE)). However, other personnel from the Treasury Department and 
the IRS participated in the development of the proposed regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
0
Par. 2. Section 1.414(w)-1 is amended by:
0
a. Revising the second sentence of paragraph (b)(1); and
0
b. Adding paragraph (b)(4).
    The revision and addition read as follows:

Sec.  1.414(w)-1  Permissible withdrawals from eligible automatic 
contribution arrangements.

* * * * *
    (b) * * *
    (1) * * * Except to the extent required under section 414A (which 
applies to plan years beginning after December 31, 2024), an eligible 
automatic contribution arrangement need not cover all employees who are 
eligible to elect to have contributions made on their behalf under the 
applicable employer plan.
* * * * *
    (4) Special rules--(i) No requirement to provide notice to 
unenrolled participant. If the requirements of section 414(bb)(1) are 
satisfied with respect to an unenrolled participant described in 
section 414(bb)(2), then the requirement to give the notice of an 
employee's rights and obligations set forth in paragraph (b)(3) of this 
section does not apply to the participant.

[[Page 3104]]

    (ii) Consolidation of notices. The notice described in paragraph 
(b)(3) of this section may be combined with one or more of the notices 
required under section 404(c)(5)(B), 514(e)(3), or 801(d)(3)(A) of the 
Employee Retirement Income Security Act of 1974 (Public Law 93-406, 88 
Stat. 829), as amended, and any notice required under section 
401(k)(12)(D) or (13)(E), provided that the combined notice--
    (A) Includes the required content,
    (B) Clearly identifies the issues addressed therein,
    (C) Is furnished at the time and with the frequency required for 
each notice,
    (D) Is presented in a manner that is reasonably calculated to be 
understood by the average plan participant, and
    (E) Does not obscure or fail to highlight the primary information 
required for each notice.
* * * * *
0
Par. 3. Section 1.414A-1 is added to read as follows:

Sec.  1.414A-1  Automatic enrollment requirements under section 414A.

    (a) Overview. This section provides rules regarding the automatic 
enrollment requirements under section 414A. Paragraph (b) of this 
section provides that a plan that includes a qualified cash or deferred 
arrangement under section 401(k) or a salary reduction agreement under 
section 403(b) is required to satisfy the automatic enrollment 
requirements of paragraph (c) of this section unless an exception 
described in paragraph (d) of this section (for certain types of plans 
and businesses) or paragraph (e) of this section (for a cash or 
deferred arrangement or section 403(b) plan established before December 
29, 2022) applies to the plan. The applicability date of section 414A 
and the applicability date of this section are set forth in paragraph 
(f) of this section.
    (b) General rule--(1) Qualified cash or deferred arrangements. 
Except as provided in paragraph (d) or (e) of this section, a cash or 
deferred arrangement will not be treated as a qualified cash or 
deferred arrangement described in Sec.  1.401(k)-1(a)(4)(i) for a plan 
year unless the plan that includes the arrangement provides that any 
cash or deferred election under the arrangement must satisfy the 
automatic enrollment requirements of paragraph (c) of this section.
    (2) Section 403(b) plans with salary reduction agreements. Except 
as provided in paragraph (d) or (e) of this section, an annuity 
contract described in section 403(b) that is purchased pursuant to a 
salary reduction agreement described in Sec.  31.3121(a)(5)-2(a)(1) 
(that is, an election to reduce compensation pursuant to a cash or 
deferred election as defined in Sec.  1.401(k)-1(a)(3)) will not be 
treated as purchased under a section 403(b) plan for a plan year unless 
the plan provides that any salary reduction agreement under the plan 
must satisfy the automatic enrollment requirements of paragraph (c) of 
this section.
    (c) Automatic enrollment requirements--(1) In general--(i) 
Arrangement must be an eligible automatic contribution arrangement. A 
cash or deferred arrangement or salary reduction agreement under a plan 
satisfies the automatic enrollment requirements of this paragraph (c) 
only if the plan provides for an eligible automatic contribution 
arrangement (as defined in section 414(w)(3)) that--
    (A) Covers the employees described in paragraph (c)(1)(ii) of this 
section, and
    (B) Satisfies the additional requirements of paragraphs (c)(2) 
through (4) of this section.
    (ii) Employees covered under the eligible automatic contribution 
arrangement. The employees who must be covered by the eligible 
automatic contribution arrangement are all employees in the plan who 
are eligible to elect to have contributions made on their behalf under 
a cash or deferred arrangement or pursuant to a salary reduction 
agreement.
    (iii) Exception to default election for employees with an 
affirmative election. An eligible automatic contribution arrangement 
will not fail to satisfy the requirements of this paragraph (c) merely 
because the default election under the arrangement does not apply to an 
employee who, on the date paragraph (b) of this section first applies 
to the plan that includes the cash or deferred arrangement or salary 
reduction agreement, had an affirmative election in effect (that 
remains in effect) to--
    (A) Have contributions made on the employee's behalf under a cash 
or deferred election or a salary reduction agreement (in a specified 
amount or percentage of compensation); or
    (B) Not have contributions made on the employee's behalf under a 
cash or deferred election or a salary reduction agreement.
    (2) Arrangement must permit permissive withdrawals. An eligible 
automatic contribution arrangement satisfies the requirements of this 
paragraph (c)(2) only if the plan that includes the arrangement 
provides that any employee who has default elective contributions made 
under the arrangement may elect to make a permissible withdrawal (as 
defined in section 414(w)(2) and described in Sec.  1.414(w)-1(c)).
    (3) Contribution requirements--(i) Default election. An eligible 
automatic contribution arrangement under a plan satisfies the 
requirements of this paragraph (c)(3) only if, under the arrangement, 
the default election made on behalf of an employee is equal to a 
uniform percentage, as described in paragraph (c)(3)(ii) of this 
section, of the employee's compensation that is subject to a cash or 
deferred election or salary reduction arrangement under the plan, 
unless the employee affirmatively elects to--
    (A) Have contributions made in a different amount on the employee's 
behalf under a cash or deferred election or a salary reduction 
agreement (in a specified amount or percentage of compensation); or
    (B) Not have contributions made on the employee's behalf under a 
cash or deferred election or a salary reduction agreement.
    (ii) Uniform percentage--(A) Initial period--(1) Initial 
percentage. The contribution percentage under the default election for 
each employee's initial period must be a uniform percentage that is not 
less than 3 percent and not more than 10 percent.
    (2) Beginning of initial period. An employee's initial period 
begins when the employee is first eligible to elect to have 
contributions made on the employee's behalf under the plan (or if 
later, when section 414A first applies to the plan).
    (3) End of initial period. The employee's initial period ends on 
the last day of the plan year that follows the plan year that includes 
the date the initial period begins.
    (B) Subsequent plan years. For each plan year beginning after an 
employee's initial period under the arrangement, the percentage 
contribution under the default election must be increased by 1 
percentage point until the percentage is at least 10 percent. However, 
the percentage may not exceed 15 percent (or the lower percentage 
specified in section 414A(b)(3)(B), if applicable).
    (iii) Exception to uniform percentage requirement. An eligible 
automatic contribution arrangement does not fail to satisfy the uniform 
percentage requirement of paragraph (c)(3)(ii) of this section merely 
because--
    (A) The percentage used for the default election varies based on 
the number of years (or portions of years) since the beginning of the 
initial period for an employee;
    (B) The rate of contributions under a cash or deferred election or 
salary reduction agreement that is in effect for

[[Page 3105]]

an employee immediately prior to the date that the default election 
under paragraph (c) of this section first applies to the employee is 
not reduced;
    (C) The rate of contributions under a cash or deferred election or 
salary reduction agreement is limited so as not to exceed the 
applicable limits of sections 401(a)(17), 401(k)(16), 402(g) 
(determined with or without catch-up contributions), 403(b)(16), and 
415; or
    (D) The default election provided under paragraph (c)(3)(i) of this 
section is not applied during the period an employee is not permitted 
to have contributions made on the employee's behalf under a cash or 
deferred election or salary reduction agreement in order for the plan 
to satisfy the requirements of section 414(u)(12)(B)(ii).
    (iv) Treatment of periods without default contributions--(A) 
Permissive redetermination of initial period in certain situations. The 
uniform percentages described in paragraph (c)(3)(ii) of this section 
are based on the date an employee's initial period begins. However, if, 
after the employee's initial period began, the employee did not have 
default elective contributions made for an entire plan year, then the 
plan is permitted to provide that the employee's initial period is 
redetermined as described in paragraph (c)(3)(iv)(B) or (C) of this 
section.
    (B) Redetermination for employee who became ineligible. If, for an 
entire plan year, no default elective contributions were made solely 
because the employee was not eligible to elect to have contributions 
made on the employee's behalf under a cash or deferred election or 
salary reduction agreement for that plan year, then the plan is 
permitted to provide that the employee's initial period is redetermined 
so that it begins on the date the employee is again eligible to elect 
to have contributions made on the employee's behalf under the plan.
    (C) Redetermination for employee who remained eligible and made an 
affirmative election. If, for an entire plan year, no default elective 
contributions were made solely because the employee made an affirmative 
election to have contributions made on the employee's behalf under a 
cash or deferred election or salary reduction agreement in a different 
amount (including an election not to have contributions made), then the 
plan is permitted to provide that the initial period is redetermined so 
that it begins on any date specified under the plan that is later than 
the date specified in paragraph (c)(3)(ii)(A)(3) of this section.
    (4) Investment requirements. An eligible automatic contribution 
arrangement satisfies the requirements of this paragraph (c)(4) only if 
amounts contributed pursuant to the arrangement, and for which no 
investment is elected by the employee, are invested in accordance with 
the requirements of 29 CFR 2550.404c-5 (or any successor regulations).
    (d) Exceptions for certain types of plans and businesses--(1) 
SIMPLE 401(k) plans. Paragraph (b) of this section does not apply to 
any SIMPLE 401(k) plan (as described in section 401(k)(11) and Sec.  
1.401(k)-4).
    (2) Governmental plans. Paragraph (b) of this section does not 
apply to any governmental plan (within the meaning of section 414(d)).
    (3) Church plans. Paragraph (b) of this section does not apply to 
any church plan (within the meaning of section 414(e)).
    (4) New and small businesses--(i) New businesses. Paragraph (b) of 
this section does not apply to any qualified cash or deferred 
arrangement, or any annuity contract purchased under a section 403(b) 
plan, for a plan year if, as of the beginning of the plan year, the 
employer maintaining the plan (aggregated with any predecessor 
employer) has been in existence for less than 3 years.
    (ii) Small businesses. Paragraph (b) of this section does not apply 
to any qualified cash or deferred arrangement, or any annuity contract 
purchased under a section 403(b) plan, before the first plan year that 
begins at least 12 months after the close of the first taxable year of 
the employer maintaining the plan with respect to which that employer 
normally employed more than 10 employees. For this purpose, the number 
of employees that the employer normally employs for a taxable year is 
determined using the rules of Q&A-5 of Sec.  54.4980B-2 of this 
chapter.
    (iii) Applicability to multiple employer plans. In the case of a 
multiple employer plan, the exceptions provided in paragraphs (d)(4)(i) 
and (ii) of this section apply on an employer-by-employer basis.
    (iv) Example--(A) Facts. Employer Q has been in existence since 
July 1, 2026, and does not have a predecessor employer. Employer Q 
maintains Plan X, which has a plan year that is the calendar year and 
includes a cash or deferred arrangement. Plan X was effective on 
January 1, 2027, and provides that a cash or deferred election must be 
an affirmative election. Employee M, who became eligible to elect to 
have contributions made on Employee M's behalf under Plan X on January 
1, 2027, made an affirmative election not to have elective 
contributions made on Employee M's behalf and that affirmative election 
is in effect on January 1, 2030. Employee N, who also became eligible 
to elect to have contributions made on Employee N's behalf under Plan X 
on January 1, 2027, has not made any election to have (or not have) 
contributions made on Employee N's behalf under Plan X. Effective 
January 1, 2030, Plan X is amended to include an eligible automatic 
contribution arrangement that satisfies the requirements of paragraphs 
(c)(2) through (4) of this section. The amendment provides that an 
employee who has a cash or deferred election that is an affirmative 
election and is in effect on January 1, 2030, is not subject to the 
default election under the eligible automatic contribution arrangement 
that is included in Plan X.
    (B) Analysis and Conclusion. Because the exception for new 
businesses set forth in paragraph (d)(4)(i) of this section ceases to 
apply to Plan X for plan years beginning on or after January 1, 2030, 
paragraph (b) of this section first applies to Plan X as of that date. 
Pursuant to paragraph (c)(1)(iii) of this section, the eligible 
automatic contribution arrangement required to be included in Plan X 
for plan years beginning on January 1, 2030, does not fail to satisfy 
the requirements of paragraph (c) of this section merely because the 
default election under the arrangement does not apply to Employee M as 
a result of Employee M's affirmative election. However, Plan X does not 
satisfy the requirements of section 414A unless the default election in 
paragraph (c)(3) of this section applies to Employee N because of the 
absence of an affirmative election made by Employee N to have elective 
contributions made on Employee N's behalf in a different amount (or to 
not have elective contributions made on Employee N's behalf).
    (e) Exception for plans established before the enactment of section 
414A--(1) In general. Subject to the rules of application in paragraphs 
(e)(2) through (6) of this section, paragraph (b) of this section does 
not apply to--
    (i) Any plan that includes a qualified cash or deferred arrangement 
if the plan terms providing for the qualified cash or deferred 
arrangement were adopted initially before December 29, 2022 (the date 
of the enactment of section 414A), even if the plan terms providing for 
the cash or deferred arrangement are effective after that date, or
    (ii) Any section 403(b) plan adopted initially before December 29, 
2022, without regard to the date of adoption of plan terms providing 
for salary reduction agreements.

[[Page 3106]]

    (2) Merger of plans established before the enactment of section 
414A--(i) General rule. If two plans described in paragraph (e)(1)(i) 
of this section are merged, then the merged plan will be treated as a 
plan described in paragraph (e)(1)(i) of this section. Similarly, if 
two section 403(b) plans described in paragraph (e)(1)(ii) of this 
section are merged, then the merged plan will be treated as a section 
403(b) plan described in paragraph (e)(1)(ii) of this section.
    (ii) Effect of merger of multiple employer plans on participating 
employers. If either of the plans described in paragraph (e)(2)(i) of 
this section are multiple employer plans, then the merger will not 
affect whether the merged plan is treated as a plan described in 
paragraph (e)(1) of this section with respect to any employer that 
maintained the multiple employer plan prior to the merger.
    (3) Merger of a plan established on or after the enactment of 
section 414A with a plan established before the enactment of section 
414A--(i) General rule--(A) Section 401(k) plans. Except as provided in 
paragraphs (e)(3)(ii), (iii), and (4)(ii) of this section, if a plan 
that includes a cash or deferred arrangement and that is not described 
in paragraph (e)(1)(i) of this section is merged with a plan described 
in paragraph (e)(1)(i) of this section, then the merged plan will not 
be treated as a plan described in paragraph (e)(1)(i) of this section.
    (B) Section 403(b) plans. Except as provided in paragraphs 
(e)(3)(ii), (iii), and (4)(ii) of this section, if a section 403(b) 
plan that is not described in paragraph (e)(1)(ii) of this section is 
merged with a plan described in paragraph (e)(1)(ii) of this section, 
then the merged plan will not be treated as a plan described in 
paragraph (e)(1)(ii) of this section.
    (ii) Exception for certain transactions. A plan that is maintained 
by a single employer and described in paragraph (e)(1) of this section 
will continue to be treated as described in paragraph (e)(1) of this 
section after a merger described in paragraph (e)(3)(i) of this 
section, if--
    (A) There is a transaction described in Sec.  1.410(b)-2(f),
    (B) The plan described in paragraph (e)(1) of this section is 
designated as the ongoing plan, and
    (C) The plan merger occurs within the transition period described 
in section 410(b)(6)(C)(ii).
    (iii) Applicability to multiple employer plans--(A) Applicability 
of exception for certain transactions involving a merger into a 
multiple employer plan. In the case of a merger of a plan that is not a 
multiple employer plan and not described in paragraph (e)(1) of this 
section into a multiple employer plan that is designated as the ongoing 
plan, paragraph (e)(3)(ii) of this section applies even though the 
ongoing plan is a multiple employer plan and without regard to whether 
that plan is a plan described in paragraph (e)(1) of this section, 
provided that prior to the transaction described in paragraph 
(e)(3)(ii)(A) of this section, the multiple employer plan was treated 
as a plan described in paragraph (e)(1) of this section with respect to 
the employer that maintained the multiple employer plan and engaged in 
the transaction.
    (B) Merger of multiple employer plans. If both of the plans 
described in paragraph (e)(3)(i) of this section are multiple employer 
plans, then the exception in paragraph (e)(3)(ii) of this section does 
not apply. In such a case, the merger will not affect whether the 
merged plan is treated as a plan described in paragraph (e)(1) of this 
section with respect to any employer that maintained either multiple 
employer plan prior to the merger.
    (4) Treatment of adoption of, or merger with, a multiple employer 
plan--(i) In general. If, after December 29, 2022, an employer adopts a 
multiple employer plan, then, with respect to that employer, the 
multiple employer plan will not be treated as a plan described in 
paragraph (e)(1) of this section. The same treatment will apply if the 
employer maintains a plan other than a multiple employer plan that is 
merged with a multiple employer plan after December 29, 2022, unless 
the merger is described in paragraph (e)(3)(iii) of this section.
    (ii) Exception for mergers involving plans established before the 
enactment of section 414A. Paragraph (e)(4)(i) of this section does not 
apply if the plan that is merged into the multiple employer plan is a 
plan described in paragraph (e)(1) of this section. Thus, if the 
employer maintains a plan described in paragraph (e)(1) of this section 
that is merged into the multiple employer plan after December 29, 2022, 
then the multiple employer plan will be treated as a plan described in 
paragraph (e)(1) of this section with respect to that employer.
    (iii) Effect on other participating employers. Neither an adoption 
nor a merger described in paragraph (e)(4)(i) or (ii) of this section 
affects whether the multiple employer plan is treated as a plan 
described in paragraph (e)(1) of this section with respect to any other 
employer maintaining the plan.
    (5) Plan spin-off. If a portion of a plan described in paragraph 
(e)(1) of this section is spun off from that plan, the resulting spun-
off plan will be treated as a plan described in paragraph (e)(1) of 
this section if either--
    (i) The plan from which the spin-off occurred was not a multiple 
employer plan, or
    (ii) The plan from which the spin-off occurred was a multiple 
employer plan that was treated as described in paragraph (e)(1) of this 
section with respect to the employer maintaining the spun-off plan.
    (6) Other plan amendments--(i) Treatment of amendments to a plan 
established before the enactment of section 414A. A plan described in 
paragraph (e)(1) of this section will not fail to be described in 
paragraph (e)(1) of this section merely because the plan is amended, 
provided that the amendment is not an amendment relating to an action 
described in paragraph (e)(2), (3), or (4) of this section. The 
preceding sentence applies even if the amendment expands eligibility to 
participate in the cash or deferred arrangement, or to enter into a 
salary reduction agreement, to other employees of the employer that 
maintains the plan or to employees of another employer that is 
aggregated with the employer that maintains the plan under section 
414(b), (c), or (m).
    (ii) Mergers with plans that do not include cash or deferred 
arrangements or salary reduction agreements. If an employer maintains a 
plan that is described in paragraph (e)(1) of this section and that 
plan is merged with a plan that does not include a cash or deferred 
arrangement or permit a salary reduction agreement, then the merged 
plan will continue to be a plan described in paragraph (e)(1) of this 
section after the merger.
    (7) Examples. The following examples illustrate the application of 
this paragraph (e). For purposes of the examples, each plan is 
maintained on a calendar-year basis, includes a cash or deferred 
arrangement that was adopted on the same date that the plan was 
adopted, and is not a SIMPLE 401(k) plan, governmental plan, or church 
plan. These examples assume that this section applies for plan years 
beginning on or after January 1, 2026, and, unless otherwise 
specifically provided, any plan merger does not occur in connection 
with a transaction described in Sec.  1.410(b)-2(f).
    (i) Example 1--(A) Facts. Plan A, which is maintained by a single 
employer, Employer R, was adopted on January 1, 2021. Plan B, which is 
maintained by a single employer, Employer S, was adopted on January 1, 
2025. On July 1, 2026, Plan A is merged

[[Page 3107]]

with Plan B, and Plan A is the surviving plan in the merger.
    (B) Analysis and conclusion. The merger is a merger of a plan 
described in paragraph (e)(1)(i) of this section with a plan that is 
not described in paragraph (e)(1)(i) of this section and is not a 
merger described in paragraph (e)(3)(ii) or (4) of this section. Under 
paragraph (e)(3)(i)(A) of this section, Plan A will no longer be a plan 
described in paragraph (e)(1)(i) of this section and will be subject to 
paragraph (b) of this section after the merger (unless an exception 
described in paragraph (d)(4) of this section, relating to new or small 
businesses, applies to Employer R).
    (ii) Example 2--(A) Facts. The facts are the same as in paragraph 
(e)(7)(i) of this section (Example 1), except that there is an 
acquisition described in Sec.  1.410(b)-2(f), and the plan merger 
occurs within the transition period described in section 
410(b)(6)(C)(ii).
    (B) Analysis and conclusion. The merger satisfies the requirements 
of paragraph (e)(3)(ii) of this section. Accordingly, Plan A will 
continue to be excepted from paragraph (b) of this section as a plan 
described in paragraph (e)(1)(i) of this section after the merger.
    (iii) Example 3--(A) Facts. Plan C, a multiple employer plan, was 
established on January 1, 2021. Plan D, a plan maintained by Employer T 
that is not a multiple employer plan, was adopted on January 1, 2024. 
Plan D merges with Plan C on December 31, 2024.
    (B) Analysis and conclusion. The merger is described in paragraph 
(e)(4)(i) of this section and because Plan D is not a plan described in 
paragraph (e)(1)(i) of this section, the merger is not excepted under 
paragraph (e)(4)(ii) of this section. Similarly, because there was no 
transaction described in Sec.  1.410(b)-2(f), the merger is not 
described in paragraph (e)(3)(iii) of this section. Accordingly, with 
respect to Employer T, Plan C will not be a plan described in paragraph 
(e)(1)(i) of this section and will be subject to paragraph (b) of this 
section after the merger (unless an exception described in paragraph 
(d)(4) of this section, relating to new or small businesses, continues 
to apply to Employer T). However, under paragraph (e)(4)(iii) of this 
section, the merger does not affect whether Plan C is treated as a plan 
described in paragraph (e)(1)(i) of this section with respect to any 
other employers.
    (iv) Example 4--(A) Facts. Plan E, a plan maintained by Employer U 
that is not a multiple employer plan, was adopted on January 1, 2021. 
Plan F, a multiple employer plan, was established on January 1, 2024. 
Plan E merges with Plan F on December 31, 2024.
    (B) Analysis and conclusion. Under paragraph (e)(4)(ii) of this 
section, the portion of Plan F that applies with respect to Employer U 
will continue to be excepted from paragraph (b) of this section as a 
plan described in paragraph (e)(1)(i) of this section after the merger. 
However, under paragraph (e)(4)(iii) of this section, the merger does 
not affect whether Plan F is treated as a plan described in paragraph 
(e)(1)(i) of this section with respect to any other employers.
    (v) Example 5--(A) Facts. Plan G, a plan maintained by Employer V 
that is not a multiple employer plan, was adopted on January 1, 2021. 
Plan G is amended, effective January 1, 2026, to add an additional 
participating employer, a subsidiary that is 100 percent owned by 
Employer V.
    (B) Analysis and conclusion. Because the expansion of eligibility 
is not an amendment relating to an action described in paragraph 
(e)(2), (3), or (4) of this section, Plan G will continue to be 
excepted from paragraph (b) of this section as a plan described in 
paragraph (e)(1)(i) of this section after the amendment pursuant to 
paragraph (e)(6)(i) of this section.
    (vi) Example 6--(A) Facts. Plan J, a multiple employer plan, was 
established on January 1, 2021. Employer W adopts Plan J on January 1, 
2022. Effective January 1, 2026, the assets and account balances 
attributable to the employees of Employer W are spun off to form a new 
plan, Plan K, maintained solely by Employer W.
    (B) Analysis and Conclusion. Under paragraph (e)(5)(ii) of this 
section, Plan K will be excepted from paragraph (b) of this section as 
a plan described in paragraph (e)(1)(i) of this section.
    (f) Applicability dates--(1) Statutory applicability date. Section 
414A applies to plan years beginning after December 31, 2024.
    (2) Regulatory applicability date. This section applies to plan 
years beginning after [DATE SIX MONTHS AFTER DATE OF PUBLICATION OF 
FINAL RULE]. For earlier plan years, a plan is treated as having 
complied with section 414A if the plan complies with a reasonable, good 
faith interpretation of section 414A.

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2025-00501 Filed 1-10-25; 8:45 am]
BILLING CODE 4830-01-P
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