Automatic 401(k) Enrollment Could Be Coming Soon

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Saving for retirement may soon be mandatory with employers automatically enrolling new hires into plans when eligible. It’s all part of the SECURE 2.0 Act, signed into law by Congress in December 2022.

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The act attempts to make saving for retirement easier through several provisions. Among them, a “catch up” clause for those 50 and older allowing greater contributions, employer contributions while employees pay off student loans, tax refund deposits into retirement accounts and earlier distribution terms.

But one of the measures has come under scrutiny — it involves employers automatically enrolling workers into their 401(k) or 403(b) retirement savings plans with a starting minimum contribution of 3% (and no more than 10%), and increasing the rate each year by 1% until reaching the 10% threshold.

The new options in the SECURE 2.0 Act will roll out over the next several decades, but the automatic enrollment motion will go into effect as early as 2025.

U.S. News & World Report noted that “small businesses with 10 or fewer employees, businesses newer than three years old and church and government plans are exempt.” As well, individuals may opt out of the enrollment if they choose.

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This new provision simply removes the steps needed on the employee’s part to enroll, including the tedious paperwork and other administrative tasks. Basically, when you are hired with a new company, you won’t have to remember to enroll in their retirement savings plan, which is helpful considering many businesses have eligibility periods, requiring new workers to have passed 90 days or even one year in some cases in order to take part.

“Workers could opt out if they decided it wasn’t feasible for them at the time or change their contributions later on. It is an opt-out system as opposed to an opt-in one,” Jake Hill, chief executive officer of DebtHammer, told U.S. News & World Report.

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One of the downsides, according to critics, can be that you may miss out on essential saving opportunities if you don’t remember to change your contributions over time and are only adding on the required 1% increase every year. This especially comes into play if the employer matching is a substantial percentage. For example, if the employer matches 6%, it would take you three years to get those matching dollars in full with the way the program rolls out.

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About the Author

Selena Fragassi joined in 2022, adding to her 15 years in journalism with bylines in Spin, Paste, Nylon, Popmatters, The A.V. Club, Loudwire, Chicago Sun-Times, Chicago Tribune, Chicago Magazine and others. She currently resides in Chicago with her rescue pets and is working on a debut historical fiction novel about WWII. She holds a degree in fiction writing from Columbia College Chicago.
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