The SECURE 2.0 Act introduced mandatory automatic provisions (MAPs) that require most 401(k) plans established on or after Dec. 29, 2022, to include automatic enrollment and automatic escalation. Most affected plans were required to add these provisions no later than Jan. 1, 2025. This article explains what MAPs require, which plans are exempt, and what to know about Starter 401(k) and QACA plans.
MAPs include both automatic enrollment and automatic escalation, each with specific minimum requirements.
A default deferral rate is the percentage of an employee's compensation automatically contributed to their 401(k) if they do not make their own election — or opt out — by the deadline in their enrollment invitation.
For plans subject to MAPs, the default deferral rate needs to be:
At least 3% of compensation
No more than 10% of compensation
Employees who are automatically enrolled need to be subject to automatic escalation — an annual increase to their deferral rate until a set cap is reached.
For plans subject to MAPs:
The deferral rate needs to increase by at least 1% per year
The escalation cap needs to be no less than 10% and no more than 15%
Note: The minimum MAP setup is a 3% default deferral rate that increases by 1% each year until reaching 10%. Plans that prefer not to include escalation can set their initial default rate at 10% — since all automatically enrolled participants would already be at the escalation cap, no additional escalation provision is required.
Plans subject to MAPs need to allow participants to request a refund of automatically deferred contributions — sometimes called a permissible withdrawal — if the request is made within 90 days of the first automatic contribution.
This means plans subject to MAPs need to include an eligible automatic contribution arrangement (EACA) or qualified automatic contribution arrangement (QACA) provision. Basic automatic contribution arrangements (ACAs) do not allow for permissible withdrawals and cannot satisfy this requirement.
Plans established on or after Dec. 29, 2022, may qualify for one of three MAP exemptions.
A small business is defined as one that normally employs 10 or fewer individuals. The IRS has not yet issued full guidance on how to determine this limit or whether any employee classes are excluded. It is clear, however, that the limit measures employees broadly and does not exclude employees who have not yet met plan eligibility requirements.
Once a plan sponsor no longer meets the requirements for this exemption, MAPs need to be added no later than the start of the next taxable year.
Important: Since EACA and QACA provisions can only be added at the beginning of a plan year, plans whose tax year and plan year do not align should plan carefully to make sure they can add the required provisions on time.
A new business is one that has been in existence for fewer than three years. The IRS has not yet provided specific timing guidance for this exemption, but it seems likely that MAP requirements need to be met by the beginning of the company's fourth taxable year.
The same timing consideration applies here — since EACA and QACA provisions can only be added at the start of a plan year, plans with misaligned tax and plan years should plan ahead.
Plans sponsored by churches or governmental organizations are exempt from MAP requirements regardless of when they were established or how many employees they have. SIMPLE IRAs and SIMPLE 401(k) accounts are also always exempt.
Starter 401(k) plans and plans with QACA provisions are not exempt from MAP requirements. There is no exception in the law or regulations for either plan type — even though existing QACA rules permit lower automatic escalation caps than the MAP minimums require.