SECURE 2.0: Automatic Enrollment Exception and Employee Count

[L. S.]

I'm hoping for help and clarification on this section of SECURE 2.0. With the automatic enrollment exceptions for small businesses with 10 employees or less, I am curious on how the employee count is defined. Is this looking at the total number of employees who received wages, tips, or other compensation from the employer (what would be reported on Form 941) regardless of whether all employees are still actively employed? Or is there another definition?

As an example,

- If Employer A has 8 employees at the start of the year.

- 4 employees terminate mid-year.

- Employer A then hires on 3 more employees before the end of the year. At the end of the year, they have 7 active employees.

 

Would this employer be considered to have a total of 11 employees for that tax year and then be subject to the automatic enrollment requirements under SECURE 2.0?

[Peter Gulia]

Internal Revenue Code § 414A(c)(4)(B) provides: “Subsection (a) [treating an arrangement as not a § 401(k) arrangement unless it meets § 414A(b) automatic-enrollment conditions] shall not apply to any qualified cash or deferred arrangement, or any annuity contract purchased under a plan, earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.”

A traditional canon of text interpretation is that every word ought to have some effect.

Perhaps “normally” means something for your question.

On your example, did the employer normally employ a number of employees somewhere between eight and seven? Or at least normally no more than eight?