What are the SECURE 2.0 Auto-Enrollment Requirements?
In the past five years, the federal government has enacted several laws – Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019 and SECURE 2.0 in December 2022 – to address the retirement crisis, targeting businesses as key players in the effort to help private-sector workers gain access to retirement plans.
When SECURE 2.0 became law on Dec. 29, 2022, it included an auto-enrollment provision. Under the auto-enrollment provision, employers must enroll eligible employees automatically into any new 401(k) and 403(b) workplace retirement plan established after SECURE 2.0 became law. Employees may opt out of participation.
This requirement goes into effect Jan. 1, 2025.
Some businesses will be exempt from this mandate, including:
What Other Auto-Enrollment Requirements are in SECURE 2.0?
In addition to auto-enrolling eligible employees in 401(k) and 403(b) retirement plans offered in the workplace, employers must select a contribution rate between 3% and 10% of the employee’s salary each paycheck, provided the employee has not chosen a different rate.
As part of the provision, these retirement plans must include an automatic escalation rate of 1% each year until the employer’s predetermined maximum rate of 10% to 15% is reached. The 1% annual rate is not required if the initial maximum contribution rate is 10% or more.
There are notification requirements, as well. The business must provide notice to employees with details about the plan such as contribution rates, opt-out instructions, and investment options.
Benefits of a 401(k) for Employers and Employees
Employers have much to gain by offering a 401(k) from a private provider to employees and almost three-quarters (72%) of employers said they feel responsible for helping their employees achieve a financially secure retirement.3 Employers can also realize savings that could help their business.
According to the IRS, auto-enrollment gets employees saving for their future and it increases employee participation in the plans – two major steps forward in addressing the retirement crisis in the U.S. Auto-enrollment also can help the plan pass nondiscrimination testing.
Businesses seeking to lower their tax liability can take advantage of tax credits provided under the law for starting new plans. The SECURE Act alone has more than 90 provisions that benefit employers and employees.
Access the full article on the SECURE Act’s auto-enrollment provisions.