As you know, your 401(k) plan is required to begin using automatic enrollment features effective as of January 1, 2025, for employees who have met your plan’s eligibility requirements and have passed their plan entry date. This is an Internal Revenue Service (“IRS”) requirement. Thus, we wanted to remind you of the following:

• For any employee who had made an election to contribute to the plan from their pay, that election remains in effect.
• For any employee who has NOT made an election to contribute and thus has no contributions being deducted from pay, you MUST begin automatically deducting the required amount from their pay effective with the first payroll on or after January 1, 2025. You should check with your legal plan document to determine the amount that must be deducted. This amount generally is 3% of pay.
• The only way that an eligible employee can have no contributions going into the plan on and after January 1, 2025, is if they have made an actual written election requesting $0/0% contributions. Therefore, we recommend that you send salary deferral election forms to all employees who have not made an election and make sure that they know that if they do NOT return an election form showing a contribution amount they would like to make OR a $0/0% election, then contributions will automatically start being deducted on and after January 1, 2025. For anyone who returns an election form showing a $0/0% contribution, then no contribution needs to be deducted. However, as mentioned above, anyone who has not returned an election form at all must automatically start having the required amount deducted for all pay periods on and after January 1, 2025. If these automatic deductions are not implemented, this could result in the employer being required to fund substantial contributions on behalf of employees who were not timely automatically enrolled.
• You must ensure that any eligible employee who returns a contribution election form showing an amount greater than $0/0% has that election implemented as soon as possible.
• You should keep records of the actual contribution elections employees make with your permanent plan records. These will be important in the event your plan is audited by the IRS especially to show that employees for whom no deductions are being taken actually made written requests to have no contributions deducted. Again, anyone who has not made an actual written election MUST have the required deductions start on and after January 1, 2025.
• These automatic enrollment rules also apply to any employees who would be considered long-term part-time (“LTPT”) employees who are eligible to contribute from their pay to the plan. Thus, you must ensure that the same rules mentioned above are also applied to any LTPT employees you may have. Therefore, if you have an LTPT employee who is eligible to contribute but has not made an election, you must have the required amount deducted from their pay starting on and after January 1, 2025.
• Please note that after 2025, you must increase the percentage of an employee’s compensation that is being deducted and contributed to the plan as a result of the automatic enrollment rules by 1% each year, until the employee reaches a contribution amount equal to 10% of pay. Once an employee is contributing 10% of pay under these automatic enrollment rules, no further increases are required.

As mentioned above, the IRS has requirements that employers fund contributions on behalf of employees who were not timely automatically enrolled as required under their rules. Therefore, you should review your records as soon as possible to ensure that you are prepared to start automatically deducting required contributions for employees starting on and after January 1, 2025, for employees who have not made a written election for a contribution (or no contribution) to the plan.

Next Steps:

Please ensure that you:

• Distribute salary deferral election forms to all eligible employees who have not made an election.
• Collect and process any returned forms promptly.
• Prepare your payroll system to begin automatic deductions where required starting January 1, 2025.
• Maintain records of all employee elections as part of your permanent plan documentation.

If you have any questions or need assistance, please do not hesitate to contact us.

Thank you for your prompt attention to this important matter.