For the automatic-contribution requirement, what is the employer?

Internal Revenue Code § 414A, which sets an automatic-contribution arrangement as a tax-qualification condition for a § 401(k) arrangement, does not apply “earlier than the date that is [one] year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.” I.R.C. § 414A(c)(4)(B).

Section 414A does not define what “the employer maintaining the plan” means.

Section 414(b)-(c)-(m)-(n)-(o) specifies several tax Code sections for which more than one organization or business might be treated as one employer. But § 414A is not among these.

Imagine a business organization is setting up a new plan with a new § 401(k) arrangement. Even counting owners, this organization has only six employees (and is unlikely ever to have more). The organization is commonly controlled with several other organizations, each of which has a separate retirement plan. (Assume none of coverage, nondiscrimination, or top-heavy is a worry.) The common-control employer has hundreds of employees.

If you advise this new plan sponsor, what do you say about whether it must or need not make its § 401(k) arrangement an automatic-contribution arrangement?

Peter, I don’t know the answer but based on the facts that you’ve outlined, I wouldn’t spend 10 minutes worrying about it. I would include the ACA and set the default at 10% and move on with my life. 

Bill Presson, thank you for that practical answer.

Others with a different outlook?

If the plan sponsor’s decision-makers are strongly opposed to implied-assent regimes, does that affect an adviser’s analysis?

Earlier this year, the IRS released proposed regulations under section 414A.

Proposed 1.414A-1(d)(4)(ii) says that "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 § 54.4980B-2 of this chapter." https://www.federalregister.gov/d/2025-00501/p-188

54.4980B-2 Q&A-5 defines "employer" by reference to Q&A-2 of the same section.

Q&A-2(a) defines employer as " (1) A person for whom services are performed; (2) Any other person that is a member of a group described in section 414(b), (c), (m), or (o) that includes a person described in paragraph (a)(1) of this Q&A-2; and (3) Any successor of a person described in paragraph (a)(1) or (2) of this Q&A-2."

For an employer who chooses to rely upon the proposed regulations in their current form, I would conclude that they are required to include other members of their related groups when determining if they meet the exemption of 414A(c)(4)(B).

C. B. Zeller, thank you noting an authority a practitioner would consider.

Borrowing that § 54.4980B-2 rule for not only counting employees but also looking to a § 414(b)-(c)-(m)-(n)-(o) employer might fit an interpretation of the statute.

As your note observes, the Treasury’s January 14 notice of proposed rulemaking is only a proposed interpretation of the statute.

Further, even if it becomes a final, effective, and applicable rule, it remains an interpretation, one that a court might consider but does not defer to.

Yet, the practical answer prevails. No tax disqualification results because a plan sponsor set an automatic-contribution arrangement § 414A might not require.

Only a plan sponsor opposed to an implied-assent regime and ready to take some risk would want advice about interpreting the statute on this question.