Automatic Enrollment in Employer Retirement Plan

If you have more than 10 employees, starting 1/1/2025 you are required to have an Automatic Enrollment Retirement Plan in place for your employees to save for the future.

1. Decide which plan is best for you, your business and your employees. You can compare plans at www.irs.gov/retirement.

2. Adopt a written plan document for how the plan operates. The plan must provide benefits for rank-and-file employees, not just business owners and managers (nondiscrimination rules).

3. Establish a trust for the plan’s assets to ensure they are used solely to benefit the plan participants.

4. Develop a system to track contributions, earnings and losses, plan investments, expenses and benefits.

5. Provide notices to employees with information about plan benefits and features.

Types of Automatic Enrollment

1. Basic Automatic Enrollment (Automatic Contribution Arrangement or ACA):

    a. Employees are automatically enrolled in the plan unless they elect otherwise.

    b. Plan document specifies the % of wages that will be automatically deducted from each paycheck.

    c. Employees can elect not to contribute or to contribute a different % of pay.

2. Eligible Automatic Contribution Arrangement (EACA):

    a. Uniformly applies the plan’s default deferral % to all employees after giving them the required notice.

    b. May allow employees to withdraw automatic contributions, including earnings, within 90 days of the first automatic contribution.

3. Qualified Automatic Contribution Arrangement (QACA):

    a. Uniformly applies the plan’s default deferral % to all employees after giving them the required notice.

    b. Meets additional requirements, such as a fixed schedule of automatic employee contributions, employer contributions, a special vesting schedule, and specific notice requirements.

    c. Default deferral % starts at 3% and gradually increases to 6% with each year that the employee participates. The default % cannot exceed 10% of  compensation in any year.

    d. Required employer contributions. Pick either:

    e. 100% matching contribution of employee contributions that are up to 1% of compensation, plus a 50% match for all elective deferrals between 1% and 6% of compensation; or

4. A non-elective contribution of 3% of compensation to all participants, including those who chose not to make any elective deferrals.

    a. Employee contributions are immediately 100% vested. Employer contributions are vested according to the plan’s vesting schedule and must be 100% vested by the time an employee has completed 2 years of service.

    b. Plan may not distribute any of the required employer contributions due to an employee’s financial hardship.

Default Investments if Employee Does Not Make and Election

Employers must choose an investment for employees’ automatically deducted salary deferral contributions. You can limit your liability for plan investment losses by choosing default investments for deferrals that meet certain criteria for transferability and safety, such as a life-cycle fund or balanced funds.

For the most up-to-date information, visit IRS.gov at: https://www.irs.gov/retirement-plans/plan-participant-employ...