Correcting 401(k) Auto-Enrollment Failures

Benefits and executive compensation partner Fred Reish and counsel Joan Neri authored an article for PlanAdviser that addresses concerns with 401(k) auto-enrollment features.

The authors note that the SECURE 2.0 Act of 2022 includes a safe harbor provision that establishes a correction procedure for auto-enrollment failures after Dec. 31, 2024. If the error is corrected under the safe harbor procedures, then the plan’s tax-qualified status will not be jeopardized. If the correction procedures are followed, the employer will not need to make a qualified nonelective contribution for the missed deferrals, although the employer will need to make a matching contribution if the employee would otherwise have been entitled to the matching contribution.

“When you conduct meetings with your 401(k) clients who have auto-enrollment features, you can educate them about this safe harbor correction program,” the authors write. “For most clients who established 401(k) plans on or after December 29, 2022 (the enactment date of the SECURE Act 2.0 of 2022), the implementation of automatic enrollment will be required starting January 1, 2025 (for calendar year plans). Those clients should know about this correction program if an employee is not properly enrolled in the plan.”