Automatic enrollment in workplace retirement plans (like 401(k)s or 403(b)s) significantly improves participation and savings rates. Previously, employees had to actively opt in to contribute; now, under Secure Act 2.0, new plans must automatically enroll employees. Automatic enrollment (or “negative election”) means contributions are deducted from paychecks unless employees opt out. This approach increases savings, participation, and retirement readiness, and benefits employers by improving testing results and making them eligible for tax credits. When an employee enrolls in a 401(k) plan through auto-enrollment, they start contributing a certain percentage of their salary such as 3%. If the plan includes an auto-increase feature, that percentage will go up automatically each year by a set amount, such as 1% per year, until it reaches a pre-set maximum (often 10% to 15%). The goal of auto-increase is to help employees gradually save more for retirement without needing to act. Many people intend to save more over time but forget or avoid adjusting their contributions. Auto-increase helps close that gap.
However, auto-enrollment has some downsides, such as increased costs, administrative complexity, and the need for more employee education. Secure Act 2.0 mandates that all new 401(k) and 403(b) plans established on or after December 29, 2022, must include an Eligible Automatic Contribution Arrangement (EACA) starting January 1, 2025. These plans must either start with auto-enrollment or be converted by 2025, unless an exception applies.