QUESTION: We heard that the Safe 2.0 Act creates a brand new kind of plan referred to as a starter 401(ok) plan. Are you able to inform us extra about these plans?

ANSWER: The Safe 2.0 Act establishes a brand new kind of retirement plan referred to as a “starter 401(ok) deferral-only association” (additionally referred to as a starter 401(ok) plan), efficient for plan years starting after December 31, 2023. A starter 401(ok) plan is a money or deferred association maintained by an eligible employer that meets sure necessities referring to computerized enrollment, eligibility, and contributions.

An employer is eligible to supply a starter 401(ok) plan if neither the employer nor a predecessor employer maintains one other certified retirement plan for the yr by which the plan is obtainable. There’s a restricted exception for an employer that maintains a plan by which the one individuals are workers lined by a collective bargaining settlement (CBA). A transition rule applies within the occasion of company transactions comparable to acquisitions.

Below a starter 401(ok) plan, every eligible worker is mechanically handled as having elected to make elective contributions of not less than 3% and no more than 15% of compensation, as specified within the plan. All workers of the employer have to be eligible, besides that the employer is permitted to impose age and repair necessities and to exclude workers lined by a CBA. Eligible workers might affirmatively elect to not take part within the plan or might elect to contribute at a distinct degree.

The utmost contribution for any worker for a calendar yr is $6,000, as listed. Catch-up contributions are permitted for workers aged 50 or over, as much as $1,000, as listed (a change made by the Safe 2.0 Act; see our Checkpoint article).

Solely worker elective contributions are permitted beneath a starter 401(ok) plan. Thus, an employer might not make matching or nonelective contributions. A starter 401(ok) plan is handled as mechanically satisfying the precise deferral share (ADP) nondiscrimination take a look at and isn’t handled as a top-heavy plan.

For extra info, see EBIA’s 401(ok) Plans handbook at Sections II (“Overview: What Is a 401(ok) Plan?”) and XXII (“Nondiscrimination: ADP and ACP Secure Harbor Plan Designs”).

Contributing Editors: EBIA Employees.