Financial security in retirement is a goal many aspire to achieve, but saving for the future can often fall by the wayside in the midst of life’s immediate priorities. Enter the Mandatory Automatic Contribution Arrangement (MACA) — a framework designed to simplify and encourage consistent retirement savings through employer-sponsored plans.
What is MACA?
The Mandatory Automatic Contribution Arrangement (MACA) is a policy or system implemented under SECURE Act 2.0 to ensure employees are automatically enrolled in retirement savings plans offered by their employers. Under MACA, a predetermined percentage of an employee’s salary is deducted and contributed to their retirement account unless the employee explicitly opts out or chooses a different contribution level.
Making enrollment the default option has a proven track record of increasing participation and helping workers build a financial cushion for their later years.
Who is Affected?
SECURE Act 2.0 was enacted on December 29, 2022, and this is the important date to keep in mind when determining if a plan is affected. All plans established on or after this date are impacted, unless:
- The company has been in operation less than three years
- The company has 10 or fewer employees (but once the 11th employee is hired, it will affect them)
If your plan was established before this date, you’re exempt.
MACA applies to all types 401(k) and ERISA 403(b) plans, including traditional, Safe Harbor and Starter-k plans. Non-ERISA plans are not affected.
What is Required?
New plans must enroll eligible employees automatically at a default contribution rate. While there is some flexibility in the default rate, it should fall between 3% and 10%, a decision that is made at the plan level and applied to all employees equally.
Additionally, contributions must automatically increase at the rate of 1% per year, until it reaches a predetermined rate, which must fall between 10% and 15%. If the auto-enroll default is 10%, then the auto-increase is not needed.
What is the Deadline?
To comply with this new regulation, the MACA provision must be implemented on affected plans by January 1, 2025. Since this deadline has already passed, it’s important to act now to ensure your plan is compliant. New plans created in 2025 and beyond will have a MACA provision included automatically.
Remember, affected employees must be notified of the details 30 days prior to the effective date. Proactive planning is essential for a smooth transition.
401GO is Here To Help
Updating plans on 401GO is easy. If you’re an employer looking to understand how these changes might apply to your plan, reach out to us. We’ll be happy to talk through the regulations and how they can be valuable to your team.
