How SECURE 2.0 mandatory automatic enrollment can affect plan mergers

Overview of SECURE 2.0 mandatory automatic enrollment

Under SECURE 2.0, 401(k) and 403(b) plans established on or after December 29, 2022, must include an automatic enrollment (auto-enrollment) feature, no later than the start of their 2025 plan year (January 1, 2025, for calendar year plans). This requirement also applies to profit-sharing plans that add a cash or deferred arrangement (CODA) on or after that date.      

These plans, also known as post-enactment plans, must meet the following requirements to comply with this provision:

• The plan must be structured as an eligible automatic contribution arrangement (EACA) subject to rules defined under the Internal Revenue Code and Treasury regulations.
• Participants who don’t make an affirmative election must be initially enrolled at the plan’s default contribution rate of at least 3% (no more than 10%) of their eligible compensation salary, with annual increases of 1% until reaching at least 10% (maximum of 15%).
• Contributions must be invested in a qualified default investment alternative (QDIA), unless otherwise directed by the participant.
• Participants must be able to request a refund of contributions within the first 90 days, although any associated employer matching contributions will be forfeited.

Plans adopted before December 29, 2022 (pre-enactment plans) are exempt from this mandate, as well as:

• Church and governmental plans
• SIMPLE plans
• Businesses in operation for less than three years
• Employers with 10 or fewer employees

Importance of knowing the transition deadline 

Mandatory auto-enrollment introduces additional complexity when retirement plans are merged. If the plans have the same status—pre-enactment or post-enactment—the rules are straightforward. For example,

• Merging two pre-enactment plans results in a pre-enactment plan.
• A spin-off from a pre-enactment plan retains its pre-enactment status.

Complexity, however, arises when a transaction under IRC Section 410(b)(6)(C) (coverage transition rules related to sales or acquisitions) involves both a pre-enactment and a post-enactment plan. To preserve pre-enactment status in these mixed-status mergers, two conditions must be met:

1 The pre-enactment plan must be designated as the surviving plan.

2 The merger must be completed by the end of the coverage transition period.

This transition period runs from the date of the transaction through the end of the plan year following the plan year in which the transaction occurred. It’s a strict deadline and missing it by even one day can materially change the outcome.

If the merger occurs outside of this window, the resulting plan is treated as a post-enactment plan, regardless of which plan survives. This triggers the mandatory auto-enrollment requirements from that point forward.¹

Additional considerations for safe harbor plans

Safe harbor 401(k) plans add yet another layer of complexity due to their rigid design and notice requirements. Certain midyear changes may be restricted or could jeopardize safe harbor status.

In most cases, a merger into a safe harbor plan should occur at the beginning of the plan year. The 410(b)(6)(C) transition deadline noted above, however, can create problems.

Example

• A company maintains a calendar year pre-enactment plan.
• It acquires a company with a post-enactment plan on November 15, 2025.
• Due to operational timelines, a January 1, 2026, merger is impractical.
• To preserve pre-enactment status, the merger must be completed by December 31, 2026.
• Waiting until January 1, 2027, would result in missing the transition window, triggering post-enactment status.

IRS guidance (Notice 2024-2) and proposed regulations issued January 14, 2025, don't yet resolve the practical challenges specific to safe harbor plans.

Operational impact of EACA requirements

A plan that becomes subject to mandatory auto-enrollment due to a merger must comply with EACA requirements as of the merger’s effective date.

This can create operational challenges, including:

• Updating recordkeeping systems
• Identifying participants to be automatically enrolled
• Delivering required notices within regulatory timeframes
• Managing these steps concurrently with merger integration

All of these require careful coordination and sufficient lead time. Yet lead time is often lacking in corporate transactions. Until final regulations are issued, plan sponsors can rely on a good-faith interpretation of the proposed rules.

Key takeaways for plan sponsors

If you’re planning a corporate transaction, you should create a strategy for merging your retirement plan early in the process. This includes:

• Determining plan status—Identify whether each plan is pre- or post-enactment before structuring the transaction
• Preserving favorable status—Designate the pre-enactment plan as the surviving plan in mixed mergers
• Meeting critical deadlines—Complete mergers within the 410(b)(6)(C) transition period
• Evaluating compliance risks—Coordinate with your benefits counsel to address EACA and safe harbor implications
• Considering alternatives—In some cases, terminating the acquired plan may be preferable to merging

Make your retirement plan part of your merger strategy

Over time, transactions involving post-enactment plans will become increasingly more common. As a result, retirement plan considerations must play a more prominent role in merger and acquisition planning. The decisions made during this process can have lasting compliance, operational, and cost implications. Early planning and coordination are essential to achieving the desired outcome.

Please visit our SECURE 2.0 resource center for more insight to help you navigate your fiduciary responsibilities.

FAQs

What’s the difference between pre-enactment and post-enactment plans under SECURE 2.0?

The difference comes down to when the plans were set up. Pre-enactment plans are plans that were adopted before SECURE 2.0 was signed into law on December 29, 2022. They can generally keep certain legacy features and may be exempt from newer requirements, such as mandatory automatic enrollment. Post-enactment plans are those created on or after that date.

How long do you have to complete a plan merger after an acquisition?

There’s no requirement that plan sponsors merge plans right away after an acquisition, but there's a practical deadline to keep in mind. Many use a transition period that typically runs through the end of the following plan year to avoid coverage issues. Completing the merger within that window can help simplify compliance and avoid added testing or administrative complexity later on.

Can you merge a safe harbor 401(k) with a traditional 401(k) under SECURE 2.0?

Yes, you can merge a safe harbor 401(k) with a traditional 401(k), but it isn’t automatic and should generally be done at the start of a plan year. The combined plan must comply with all applicable rules, and you’ll need to decide whether to keep the safe harbor design or switch to a traditional structure. Timing, plan terms, and required contributions all play a role in your decision.

1 Notice 2024-2 addresses merger and spin off scenarios for multiple employer plans (MEPs). The merger of a post-enactment plan into a MEP, regardless of when the MEP was first adopted, doesn't alter its post-enactment status. Similarly, a plan spun off from a MEP will retain its pre- or post-enactment status following the spin-off.