IRS should clarify the merged MEP/PEP automatic enrollment rule

The rules are the rules and I believe that rules should be consistent and rational. The Internal Revenue Service (IRS) disagrees with that notion when it comes to automatic enrollment and merged plans into MEPs and PEPs.

SECURE 2.0 requires that 401(k) plans created on or after December 29, 2022, must automatically enroll participants at a contribution rate of 3% to 10% starting in 2025. Plans started prior to December 29, 2022, are not subject to this requirement and are “grandfathered” in.

IRS 2004-2 explained that a single-employer plan that is grandfathered under this provision and later joins a multi-employer plan (MEP) or pooled employer plan (PEP) that is not grandfathered, loses its grandfathered status.

I think that this contradicts the law and reduces the interest that the existing plan would have to join MEPs and PEPs. Automatic enrollment may cost an existing plan more matching contributions if they joined a PEP enacted after the deadline.

Any existing plan that merges into any type of plan should be grandfathered for purposes of automatic enrollment.

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