SECURE 2.0 - Mandatory Auto Enrollment for New 401(k) Plans (What is considered "new"?)

When considering spinoffs and plan mergers, what would be considered the date of establishment for the plan that is spun off or for plans that merge.  Would it be the establishment date of the original plan?  Would these plans be considered new for purposes of the new auto enrollment requirement?

I don't see how these plans would be deemed newly established under any scenario.

For merged plans, I agree that they would not be considered newly established because the effective date would not be the date of the merger.  But for plans that are spun-off, the effective date is the date of the spin-off.  So if a plan is spun off after January 1, 2025, would it not be treated as "newly established" for purposes of new Code section 414A?  

For merged plans, I think it will depend on when the surviving plan of the merger was established. We have had scenarios where a new plan was established, then an existing plan was merged into it, and the surviving plan received a DL on the basis of the plan's original establishment (after the elimination of the regular DL cycles, so only a newly adopted plan would qualify). For two plans that are older, not sure that line of reasoning is feasible. 

If an employer doesn’t want an automatic-contribution arrangement, does Internal Revenue Code of 1986 § 414A set up incentives for mergers-and-acquisitions and other deal makers to arrange things so no new plan is created?

If so, will the deal makers be smart enough that the Internal Revenue Service will find no new plan is created?

I guess we'll need guidance. I understand that "new" plans via spin-offs and a merger can create a A+B = "new" plan C rather than just A merging into B. However, these "new" plans were not "brand new" newly created out of nothing where sponsoring employer(s) had no plans at all. Maybe I'm reading too much into I what I think is the spirit of the law - that brand new plans covering employees not previously covered under a plan by their employer (or predecessors) must be auto-enrollment and all others are grandfathered.

Personally, I think the next round of significant pension legislation will mandate auto-enrollment for all 401(k) plans (and maybe 403(b)) new and existing, with a phase period for existing plans. 

How about an existing PS-Only Plan being amended to add a 401k feature? I would think this would not have to be auto enrolled since the Plan is grandfathered but could also see guidance saying differently. Any thoughts?

It's based on the date on which the cash or deferred arrangement is established. A PS plan adding 401(k) is establishing a new CODA, so the auto enrollment requirement would apply.

On 1/11/2023 at 12:28 PM, CuseFan said:

I guess we'll need guidance.

I think that's all we really can be sure of at this point.

To return to youngbenefitslawyer’s question, before 2025 is not the relevant time for whether a “new” § 401(k) arrangement was “established”.

The exception Internal Revenue Code of 1986 § 414A(c)(2)(A)(i) provides is for a § 401(k) arrangement “established” by December 28, 2022.

An arrangement established after that date need not provide an automatic-contribution arrangement for 2023 or 2024, but must for 2025 meet Internal Revenue Code of 1986 § 414A(a)’s condition.

That’s so if a § 401(k) arrangement became established, for example, on December 30, 2022—a closing date used for many 2022 transactions.

If this afternoon one is an employee-benefits lawyer advising on a merger, acquisition, or other deal scheduled to close in seven business days on January 31, one must render her advice as best she can without waiting for Treasury’s or its Internal Revenue Service’s interpretation.

Some lawyers rendered that advice in December 2022.