401(k) automatic enrollment: Benefits for employers and employees

401(k) automatic enrollment: Benefits for employers and employees Apr 15, 2026 2:30:00 PM SECURE 2.0 mandates automatic enrollment for newer plans. Let’s look at the benefits for your business and your employees. Let’s take a look at how the new default for 401(k) plan enrollment can be a win-win for your business and your employees. What does SECURE 2.0 require for 401(k) automatic enrollment? Under the SECURE 2.0 Act, automatic enrollment is a requirement for plans with an initial effective date on or after December 29, 2022. The provision went into effect on January 1, 2025. The provision: Requires plans to automatically enroll employees at a default rate between 3% and 10%. Must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution. Must automatically increase the default contribution rate by 1% after each completed year of participation until it reaches at least 10% (but no more than 15%) of compensation, unless the participant opts out or elects a different rate. As before, must allow employees to change their contribution rate or opt out of the plan at any time. If your plan was created on or after December 29, 2022 and isn't yet compliant, now is the time to act. It can save you operational stress while showing your employees that you care about their savings. Keep in mind: Certain plans are exempt from this requirement, including plans sponsored by businesses with fewer than 10 employees, businesses that have been in existence for less than three years, church plans, and governmental plans. Learn more How automatic 401(k) enrollment benefits employers: Tax credits, participation, and talent retention Automatic enrollment requires some upfront implementation, but there are ongoing benefits to your business as a result. Increased plan participation: According to the IRS, automatic enrollment can increase employee participation, which may result in various positive outcomes. More plan participation could result in increased tax deductions if you offer employer-matching contributions. Higher participation may increase the likelihood of your plan passing nondiscrimination testing since, by default, automatic enrollment does not favor specific employees. Help attract and retain talent: A 401(k) plan with high participation could prove to be a crucial aspect in building a strong workforce. In our 2025 Retirement Readiness survey of 1,000 full-time employees, more than half (57%) said better financial benefits would entice them to leave their current job. Younger employees (Gen Z: 65%, Millennials: 64%) are most likely to switch jobs based on financial benefits, and about two-thirds of employees with significant anxiety (69%) or moderate anxiety (61%) over finances would do the same. Automatic enrollment tax credit: Adding automatic enrollment, even if your plan isn’t mandated to, can provide you with a tax credit. Employers that add automatic enrollment to a new or existing plan can take advantage of a $500 tax credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Embracing automatic enrollment can yield positive results for your business, but as we’ll see next, the results may be even more meaningful for the financial lives of your employees. How automatic enrollment improves retirement savings outcomes for employees Simply put, automatic enrollment makes it easier for employees to save for retirement. And the data speaks for itself: Recent industry data reported that that plans with automatic enrollment tripled the participation rate—to 91%—among new hires. Three years in, auto-enrollment plans maintained strong retention—92% of those enrolled automatically were still active contributors, compared to just 29% in voluntary plans. That can be life-changing for many people who may have never otherwise started saving. EACA vs. QACA: automatic enrollment plan options under SECURE 2.0 In 2025, the SECURE 2.0 Act made Eligible Automatic Contribution Arrangement (EACA) the default for all 401(k)s created December 29, 2022 or later, again with a few exceptions. Auto-enrollment requires employees’ deferral rates must be set between 3% and 10%. Newly auto-enrolled participants must also have a 90-day window to request their funds back. You can also consider a Qualified Automatic Contribution Arrangement (QACA) by way of a Safe Harbor 401(k) plan. That means you’ve already committed to, among other things, a specific threshold of employer contributions. Here are options for newly created plans: All plans with effective dates of December 29, 2022 or later Eligible Automatic Contribution Arrangement (EACA) Qualified Automatic Contribution Arrangement (QACA) Employees enrolled at preset contribution rate between 3% and 10% ✓ ✓ Employees can opt out or change contribution rate ✓ ✓ Employees can request refunds of deferrals within first 90 days ✓ ✓ Requires employer contributions (i.e., Safe Harbor) and accelerated vesting schedule ✓