How SECURE 2.0’s Automatic Features Apply to MEPs, PEPs
The IRS provided clarification about ‘grandfathered’ plans, and the DOL announced Form 5500 updates that include Schedule DCG.
The IRS issued a notice on December 20, 2023, that sought to clarify various provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the SECURE 2.0 Act of 2022, such as cash balance plans and automatic features.
Multiple employer plans and pooled employer plans are subject to the same automatic enrollment and escalation requirements as other defined contribution plans, as outlined by SECURE 2.0. Any such plan adopted after December 29, 2022, must automatically enroll participants between 3% and 10% unless the participant elects otherwise, starting in 2025.
Plans adopted prior to December 29, 2022, are “grandfathered in.” To avoid confusion for composite-style plans such as MEPs and PEPs, which could include individual plans from both categories, the IRS notice clarified that if a new MEP or PEP is being created and all the individual plans in it are grandfathered, then the plan is as well. If even one individual plan is not, then the new plan is not either, despite the grandfathered status of the others.
If an individual plan “spins off,” or leaves a MEP or PEP, and becomes an individual plan again, it maintains the grandfathered status it had or would have had in the absence of the MEP or PEP. That is to say, if a grandfathered plan joins a MEP in 2023 and leaves before 2025, it would not be subject to automatic requirements.
A third form of composite plan, a defined contribution group, was created by the SECURE Act of 2019. A plan in a DCG maintains its single-employer status but can file a consolidated Form 5500 with the other plans in the group, provided they share the same trustee, named fiduciaries, administrator, plan year and investment options. A DCG cannot include employer stock, is still subject to single-employer-plan audits and must keep its own plan documents.
The Department of Labor announced updates to the Form 5500 for year 2023 reporting, and the updated version will include a Schedule DCG for this purpose for the first time.