The SECURE Act 2.0 makes changes to the US employer retirement plan system with respect to both single employer plans and to “applicable collectively bargained plans.” Applicable collectively bargained plans are defined in the statute as plans maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers, i.e., multiemployer plans.
Some of the mandatory changes of the SECURE Act 2.0 applicable to 401(k) plans will create administrative challenges (to put it lightly) for multiemployer 401(k) plans, and it is not too soon for such plans to start to prepare. Two of these provisions are discussed below.
Mandatory Roth Catch Up Contributions
Effective for plan years beginning after December 31, 2023, where a 401(k) plan permits participants who will have attained age 50 by the end of the calendar year to make “catch-up contributions” (additional elective deferrals), the plan must provide that such catch-up contributions are made as Roth after-tax deferrals for participants whose wages for the preceding year from the employer sponsoring the plan exceed $145,000. For this purpose, “wages” means IRC § 3121(a) wages, which may differ from the plan’s definition of compensation used for benefits. With a multiemployer plan, typically a joint board of trustees (and not a single employer) is the plan sponsor.
It is not uncommon for employees who participate in a multiemployer plan to work for several contributing employers in the same year. However, since the statute doesn’t otherwise indicate that multiemployer plans are exempt from the provision, a reasonable reading is that the wages taken into account by the plan for the immediately preceding year (i.e., the aggregate wages from employers contributing to the plan with respect to an individual employee) would be used to measure the $145,000. This will require additional reporting by participating employers and new recordkeeping for plan administrators. Plans will also need to communicate these changes to plan participants and contributing employers.
Mandatory Automatic Enrollment Provisions for New Plans
The SECURE Act 2.0 requires, effective for plan years beginning after December 31, 2024, new 401(k) plans to provide for automatic deferrals (with a minimum of 3% and maximum of 10% deferral rate), with automatic escalation of the deferral rate by 1% every subsequent year, up to at least 10% and a maximum of 15%. For purposes of this provision, the statute says that multiple employer plans are to treat each contributing employer separately in applying this provision. Thus, it appears that newly adopting employers to a multiemployer 401(k) plan would be subject to the automatic enrollment and automatic escalation provisions. It is possible that future guidance from the Treasury Department could clarify that the statute’s reference to multiple employer plans for this purpose does not include multiemployer plans. Until such guidance is provided, multiemployer plans will need to build compliance with the automatic enrollment and automatic escalation requirements into plan administration and ensure that contributing employers’ payroll feeds are aligned. Plans will also need to communicate these changes to plan participants and contributing employers.
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