Does a recordkeeper presume a plan sponsor adopts a § 414A automatic-enrollment arrangement?

For many SECURE 2019 and SECURE 2022 tax law points, recordkeepers set presumptions about which provisions a customer plan sponsor ought to want or is deemed, absent an opt-out, to have instructed the recordkeeper to assume in providing the recordkeeper’s services.

Imagine a recordkeeper chooses to do this about whether a plan provides or omits an Internal Revenue Code § 414A eligible automatic contribution arrangement.

Imagine the recordkeeper practically must set the defaults using only the information the recordkeeper’s computer systems know.

Imagine the system doesn’t know whether the employer “has been in existence for less than 3 years.”

Imagine the system doesn’t know whether the employer “normally employed more than 10 employees.”

If the system doesn’t show that the plan’s § 401(k) arrangement was established before December 29, 2022:

Am I right in guessing a recordkeeper in these circumstance would set a default that an eligible automatic contribution arrangement is on (until the plan sponsor tells the recordkeeper it’s off)?

One of the first things a recordkeeper does is obtain an existing plan document or provide a new plan document, and then get confirmation from the plan sponsor the recordkeeper's understanding of the plan provisions is correct.  I doubt there would be a default EACA or any other plan design since in the near term most clients new to the recordkeeper already will have had a plan in place with another recordkeeper.

A recordkeeper can take a quick look at a plan's 5500s on the EFAST2 and know the answers to most or all of those questions within minutes.

Paul I, thank you for your always thoughtful observation.

Yet, you might be describing service practices of a quality third-party administrator or focused recordkeeper, but not necessarily the service of some big recordkeepers, perhaps especially some that serve tens of thousands of plans.

Some recordkeepers might not look up a plan’s Form 5500 information. That might be so for an automated email assembled using software that might not read the Form 5500 data.

Also, isn’t it possible that a big recordkeeper’s system record of a plan’s provisions (including the plan sponsor’s confirmations of provisions not yet stated by “the” plan document) shows that the plan in 2023 and 2024 has no automatic-contribution arrangement, yet a relevant question is whether the plan needs or wants to change to an automatic-contribution arrangement beginning with 2025 (when I.R.C. § 414A first applies as a tax-qualification condition)?

I’m guessing (i) there are some § 401(k) arrangements first established after 2022; (ii) some of those do not now provide an automatic-contribution arrangement; and (iii) some, but not all, of those might need, beginning with 2025, an automatic-contribution arrangement to meet the soon-applicable tax-qualification condition of Internal Revenue Code § 414A.

Or is my lack of recent experience with services for micro plans causing me to miss something that makes my question not really a question?

I have worked for three large recordkeepers, they always get the documents to move a plan. They sometimes restate the same provisions onto a new VS document but they don't usually change the existing provisions unless there is an amendment.  

Peter, your instincts are correct - there will be plans that should add the EACA provisions by 1/1/2025 and will not have done so by the start of the new year.  I expect that this will be a small percentage of those plans that must do so since the requirement has been out there for almost 2 years.  The industry highlighted this requirement and new plans adopted after 12/29/2022 would have been informed about the effective date.

I expect the plans most vulnerable to not meeting the 1/1/2025 date will be plans who do not know they were not grandfathered.  This more likely would occur as a result of a corporate transaction (spin-offs in particular), or in a standalone plan moving to a MEP.

It will be interesting to see if the 5500 edits for the 2025 filings include an edit of a plan without a Pension Characteristic Code 2S (auto-enrollment) and an original effective date after 12/29/2022.

I wonder if there won't be a project by the IRS to catch those, seems like an easy target.

It would be a somewhat productive target only if, among other conditions, the IRS could build software to use the data that would find likely examination targets.

Of all the “stuff” TPAs and RKs have to deal with from the SECURE acts, this is actually one of the easiest to implement. 

I agree with everything everyone has said thus far, but I think a few practical points need to be put forth.  First, if a plan is a start-up post Secure 2.0 signing, then whoever is the recordkeeper should "strongly encourage" the employer to implement the ACA provisions from day 1.  In our case, virtually all did.  Second, it is actually highly unlikely that a post effective date start-up has actually decided to move recordkeepers.  In most case (not all, but most), there aren't sufficient assets to entice a successor recordkeeper to seek out that business, nor are salespeople interested because the payout is low.  If a salesperson is going after start-ups or newer plans, it's because of a relationship with the advisor (and of course, they are the most important advisor on the planet gobs of new business if we do this one favor for them....)  Indeed, many recordkeepers loathe startups to begin with (the payback is lengthy) end have back end "term fees" that discourage moving the plan early.  There are some that move, and it is incumbent on our transition services team to verify status, and our document consulting team to engage the client to implement ACA at transition time, rather than 1/1/25.

Our approach, is to accept startups, or many newer plans ONLY IF they implement ACA provisions to kick start asset growth (oh, and it's good for the client too.)

@MoJo I think you have the right of it, why anyone wouldn't adopt now to save the trouble later I have no idea.  

Other BenefitsLink neighbors, especially austin3515, have described circumstances in which applying a § 414A automatic-contribution arrangement might be unhappy for the workforce and unwelcome for the employer. Even facing the eventual, those plan sponsors might have wanted to delay as long as allowed.

Also, the idea of adopting an automatic-contribution arrangement before § 414A requires it because § 414A soon will require it might be inapt for some employers with few employees. A plan’s sponsor might not yet know or even anticipate “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.” Some employers that established or establish a § 401(k) arrangement after December 28, 2022 might never need to meet § 414A(a)’s condition.