The IRS issued guidance today on the application of the SECURE 2.0 auto-enrollment mandate to MEPs, including PEPs. An initial review of the proposed regulation suggests that an employer’s status as a “pre-enactment” plan eligible for exemption from the mandate would not be affected by merging with a MEP, regardless of the date of enactment of the MEP. This is a reversal of what some had believed to be the IRS’ position—that eligibility for the pre-enactment exemption was based on the date of enactment of the MEP, not the employer’s prior plan, which would have meant that an exempt employer joining a post-enactment MEP would lose their exemption and become subject to auto-enroll.
Below are excerpts from the proposal, including the “good faith” compliance provision. For more information, see the proposed regulation at https://lnkd.in/gbdhV49g.
“In response to Notice 2024-2, the...IRS received...comments expressing concern that, in the case of an employer maintaining a pre-enactment plan that is merged into a [MEP]...established after December 29, 2022, the [MEP] would not be treated as a pre-enactment plan with respect to that employer after the merger. The comments requested guidance providing that if a pre-enactment plan is merged into a [MEP], then the merged-in plan does not lose its pre-enactment status with respect to the employer that maintained the merged-in plan regardless of whether the [MEP] was established before or after December 29, 2022. In response to these comments, the proposed regulation would provide that, if an employer maintains a pre-enactment plan that is merged into a [MEP] after December 29, 2022, then the post-merger multiple employer plan will be treated as a pre-enactment plan with respect to that employer. This rule would apply regardless of the date of establishment of the multiple employer plan.”
“…The proposed regulation would apply to plan years that begin more than 6 months after the date that final regulations under section 414A are issued. For earlier plan years, a plan would be treated as having complied with section 414A if the plan complies with a reasonable, good faith interpretation of section 414A.”
This guidance would appear to support GPS’ existing good faith interpretation of the mandate and allow employers to be on a level playing field with regard to auto-enroll regardless of whether they join a MEP/PEP or are in a single employer plan, but GPS will study the guidance to clarify and/or expand this initial interpretation as necessary.
