If your job offers a 401(k) retirement plan, the amount you take home in your paycheck might decrease if you miss an automatic enrollment email.
Starting on January 1, 2025, many companies will be required to initiate automatic enrollment and escalations for 401(k) plans. This could mean that you're signed up for your company's retirement account even if you previously opted out and that your contribution amount is automatically set to 3% through 10% of your paycheck, unless you decide to opt out or change the amount.
These changes are a part of the SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement), which aims to encourage more US workers to save for retirement.
Here's what experts say this could look like and what you need to know about your 401(k) retirement plan.
Read more: About to Retire? How to Apply for Social Security Benefits
Will I be required to sign up for a retirement plan?
No, you won't be forced to sign up for a retirement plan, but you may need to opt out. If you miss this step, you may be automatically enrolled by your employer, according to the new guidelines.
SECURE 2.0 didn't introduce the idea of automatic enrollment. Since 2006, employers have had the option to implement automatic enrollment in 401(k) plans for their employees. Approximately half of employers were using automatic enrollment for retirement plans in 2023, according to the Society for Human Resource Management.
Instead of employers having the option to automatically enroll their workers, most will be required to enroll their employees. If your company is required to automatically enroll you in their retirement plan, you'll be notified when enrollment happens and offered the chance to opt out.
Will my retirement contribution amount automatically increase?
SECURE 2.0 also introduced another automation called automatic escalation, meaning that if you've enrolled in a 401(k), your contributions will automatically increase every year (typically by 1%). So, if you started off saving 3% of your pay in your 401(k), the following year, it would increase to 4%. And the year after that, it would bump up to 5%, and so on.
"Most people get raises, so the concept is, once you've gotten used to 3%, then bumping it up the next year to 4% doesn't affect your paycheck," said Wendy Baker, Assistant General Counsel at Human Interest.
That doesn't mean you have to contribute the percentage that's set up for you, though. You can log in to your retirement account and set the percentage or dollar amount per paycheck that makes the most sense for you.
Is my employer required to follow these retirement plan changes?
Whether your 401(k) will change and how much it's likely to change will depend heavily on your employer. The mandatory components of SECURE 2.0 only apply to retirement plans established after December 29, 2022.
If your employer established a plan before that date, they won't be required to automatically enroll employees. However, they might decide that even though it's not required, they still want to implement automatic enrollment and escalation.
Employers also can decide whether they're going to only automatically enroll newly eligible employees into the 401(k) or whether they want to automatically enroll everybody on payroll. If you got a new job in August of this year and you'll be eligible for a 401(k) through that job in February 2025, then you might be automatically enrolled. If you got a new job in June of this year and become eligible in December, then you might not be. Ultimately, it will be up to each employer to make those determinations.
If you're automatically enrolled in a 401(k), your employer will likely set your withholding amount. Let's say the employer sets the withholding amount at 3%. With automatic escalation, your contribution amount will increase every year, typically by 1% per year.
Why are these 401(k) changes happening?
The idea behind automatic enrollment and escalation is to make saving for retirement easier for employees.
"I have met too many employees over the last 20-plus years being an advisor who 'meant to sign up but forgot,'" said Kristina Keck, vice president and practice leader for Retirement Plan Services at Woodruff Sawyer. "They wish they had been automatically enrolled and have a significant sense of loss for missing out on years of savings, plus any employer match that was missed."
With automatic enrollment and escalation, you don't have to remember to enroll in a 401(k) when you're eligible, and you don't have to remember to increase your contributions over time. You'll save more for retirement throughout your career and feel more comfortable and safe when you reach retirement age.
Can
I
opt
out
of
these
changes?
If you're automatically enrolled in a 401(k), you can opt out. You'll be notified if your employer enrolls you, and you can choose to cancel your enrollment.
If you like the idea of having a 401(k) but you'd rather not save the percentage of your pay your employer sets up, you can choose to save more or less. You just can't exceed the retirement plan contribution limits set by the IRS. (For 2024, those annual limits were $23,000 for a 401(k) and an additional $7,500 for those 50 and older.) And if you prefer to opt out of the automatic escalation portion of the plan, you can do that, too.
When will the SECURE 2.0 401(k) changes go live?
The 401(k) automatic enrollment and automatic escalation components of SECURE 2.0 are set to launch in 2025. Other provisions of SECURE 2.0 went live earlier this year or will roll out in 2025, 2026 and 2027.