SECURE Act: Increase in Cap for Automatic Enrollment for Safe Harbor Plans

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) includes a provision that impacts 401(k) plans that utilize the automatic enrollment safe harbor.

Under prior law, 401(k) plan sponsors could elect to use a safe harbor design that incorporates automatic enrollment and automatic escalation provisions. Prior to the SECURE Act, plans were permitted to increase participants’ contribution rates over time, up to a maximum of 10% of compensation. Section 102 of the SECURE Act increases this limit to 15% of compensation.

As under prior law, any automatic increases are made annually at the beginning of the plan year and participants are allowed to opt out of the increase.

The increase in the maximum contribution rate, which is effective for plan years beginning after December 31, 2019, is optional. Sponsors of automatic enrollment safe harbor plans who wish to increase the maximum contribution rate above 10% of compensation may amend their plans to incorporate this change.

Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.