SECURE Act 2.0 Auto-Enrollment Mandate Deadline: What Business Should Know

The United States has a retirement crisis. In the past five years, the federal government has enacted several laws – Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019 and SECURE 2.0 in December 2022 – to address the crisis, targeting businesses as key players in the effort to help private-sector workers gain access to retirement plans.

That is one solution, and the growth in state-administered workplace retirement programs since 2017 is a step in the right direction. However, 31% of Americans working in private industry still lack access to a workplace-sponsored retirement plan.¹ According to the U.S. Bureau of Labor Statistics, the first three states that adopted workplace retirement mandates (Oregon, Illinois, and California) found an increase in the adoption of new private plans – 401(k) and 403(b) – by businesses without workplace retirement plans after the mandates went into effect. The three states had a combined growth rate that was 35% higher in the first year after their respective programs launched than in states without programs.²

Since 2022, a dozen more states have enacted laws mandating workplace retirement programs with five more states sponsoring active programs.

The goal is to get more individuals access to a retirement plan in the workplace and then improve the participation rates. One of the provisions in SECURE Act 2.0 includes an automatic enrollment mandate for 2025 that could help.

What are the SECURE 2.0 Auto-Enrollment Requirements?

When SECURE 2.0 became law on Dec. 29, 2022, it included an auto-enrollment provision. Under the auto-enrollment provision, employers must enroll eligible employees automatically into any new 401(k) and 403(b) workplace retirement plan established after SECURE 2.0 became law. Employees may opt out of participation.

This requirement goes into effect Jan. 1, 2025.

Some businesses will be exempt from this mandate, including:

• Businesses who do not normally employ more than 10 employees
• Businesses that established a workplace plan before Dec. 29, 2022
• Businesses that have operated for less than three years
• SIMPLE 401(k) plans, governmental and church plans

What Other Auto-Enrollment Requirements are in SECURE 2.0?

In addition to auto-enrolling eligible employees in 401(k) and 403(b) retirement plans offered in the workplace, employers must select a contribution rate between 3% and 10% of the employee’s salary each paycheck, provided the employee has not chosen a different rate.

As part of the provision, these retirement plans must include an automatic escalation rate of 1% each year until the employer’s predetermined maximum rate of 10% to 15% is reached. The 1% annual rate is not required if the initial maximum contribution rate is 10% or more.

There are notification requirements, as well. The business must provide notice to employees with details about the plan such as contribution rates, opt-out instructions, and investment options.

The IRS published Notice 2024-02 that includes additional details and exemptions.

Benefits of a 401(k) for Employers and Employees

Employers have much to gain by offering a 401(k) from a private provider to employees and almost three-quarters (72%) of employers said they feel responsible for helping their employees achieve a financially secure retirement.³ Employers can also realize savings that could help their business.

According to the IRS, auto-enrollment gets employees saving for their future and it increases employee participation in the plans – two major steps forward in addressing the retirement crisis in the U.S. Auto-enrollment also can help the plan pass nondiscrimination testing.

Businesses seeking to lower their tax liability can take advantage of tax credits provided under the law for starting new plans. The SECURE Act alone has more than 90 provisions that benefit employers and employees.

Most workers consider a wide range of benefits as being important, with 89% listing a 401(k) or similar plan behind only health insurance (95%).³

Employers recognize the value of a retirement benefit, as well, with 79% saying they believe offering one is very or somewhat important for attracting and retaining employees – a percentage that jumps to 96% among those employers currently sponsoring a 401(k) plan.³

Employees, too, can gain real savings in a 401(k) plan. The annual employee maximum contribution rate of a 401(k) in 2024 is $23,000, more than triple that of a state-facilitated IRA.

Paychex Can Help

Employers planning to offer a 401(k) or similar retirement plan should understand the time it takes to handle administrative tasks, plus the requirements involved to maintain compliance. It is complex. Paychex is the leading 401(k) plan provider in the nation* and has the experience to make administration simpler as your recordkeeper.

To see how much you could potentially save in retirement plan startup fees, try our SECURE Act tax credit estimator to get started.

¹U.S. Bureau of Labor Statistics, March 2022, posted on February 2023

²Bureau of Labor Statistics, Form 5500 data filed with USDOL, 2013-2019

³Nonprofit Transamerica Institute, “Workplace Transformations: Employer Business Practices and Benefit Offerings,” 24^th Annual Transamerica Survey, March 2024

^* By 401(k) participating employer count as validated by publicly available information for calendar year 2023