Starting in 2025, most new 401(k) and 403(b) plans will be required to automatically enroll eligible employees, a change brought by the SECURE 2.0 Act passed by Congress in 2022.
The provision aims to boost retirement savings by making enrollment the default option rather than requiring employees to opt in. Under the new rule, eligible workers will be automatically enrolled at a contribution rate of at least 3% of their salary, which must increase annually by 1% until it reaches at least 10%, but no more than 15%.
The mandate applies to new retirement plans established on or after Dec. 29, 2022, with implementation required by Jan. 1, 2025. Some employers are exempt, including businesses with 10 or fewer employees, companies in operation for less than three years, and church or governmental plans.
Automatic enrollment has shown to significantly increase participation rates, especially among younger and lower-income workers. By making saving easier and more consistent, the SECURE 2.0 Act seeks to help more Americans build financial security for retirement.
When setting up a new plan, understanding the rules will be key to a smooth transition.