The impact of automatic enrollment in 401(k) plans is becoming increasingly evident. On average, 401(k) plans with an automatic enrollment feature have a 20% higher participation rate than plans without. This translates to a more financially secure future for your workforce. However, the landscape is set to shift further.
Enter the SECURE 2.0 Act
Automatic enrollment is about to become more popular. If you’re a new plan sponsor or contemplating adding a 401(k) plan to your benefits package, the SECURE 2.0 Act may have taken the decision of whether or not to include automatic enrollment out of your hands. Under the Act’s provisions, starting in 2025, many 401(k)and 403(b) plans set up after 2022 must automatically enroll employees who meet their company’s plans eligibility requirements.
The SECURE 2.0 Act’s other automatic enrollment provisions include:
- The plan’s initial contribution amount must be at least 3% and not more than 10%.
- Contributions increase by 1% annually until reaching at least 10%, but not more than 15%.
- Existing 401(k) and 403(b) plans pre-Act are grandfathered.
- Small businesses with ten or fewer employees, businesses newer than three years old, and church and government plans are exempt.
- Individual employees may opt out of the automatic enrollment.
Making it easier for small businesses to offer retirement plans will help more people access retirement benefits. Do you have questions about how the SECURE Act 2.0 Act affects your employee benefits plan? Let Boris Benic and Associates help you navigate changes in your plan to ensure compliance.