What You Need to Know about Auto Enrollment
New Auto-Enrollment Plans
If you’re an employee of a company that first established a retirement plan at the end of 2022, chances are you’re covered by that retirement plan as result of auto enrollment.
The law now says that if a business with at least 10 employees started up a 401(k) or 403(b) plan on or after December 22, 2022, the business must automatically enroll its eligible employees in the plan after it has been in business for three years. This fact sheet describes the automatic enrollment rules for these plans. Note that some plans not covered by the new law adopted automatic enrollment provisions on a voluntary basis before December 2022 or as a result of the new law. Different automatic enrollment rules than described in this fact sheet apply to those plans.
The goal of the auto enrollment law is to make it easier for U.S. workers to save for their retirement as early as possible.
What Does Auto-Enrollment Take Place?
You will be automatically enrolled when you become eligible to participate in the plan. A plan may require that you have one or two years of full-time employment and have reached the age of 21 before you can enroll.
As part of your enrollment, you should receive an auto enrollment notice and a description of the plan, called a Summary Plan Description (SPD), and other documents that explain the features of the plan.
Under the new law, part-time employees who work at least 500 hours for two consecutive years may also participate in their employer’s plan, but the plan does not have to automatically enroll them.
What if I Don’t Want To Participate in the Plan?
Employees always have the choice to disenroll from the plan. If they disenroll during the first 30 to 90 days of being automatically enrolled, they can withdraw the contributions they made during that period.
Check with your plan representative about this procedure if you don’t want to participate in the plan. You can also choose to remain in the plan but decrease or stop future contributions to the plan (and possibly resume contributions later). This way, the amount already in the retirement account stays with the plan and generally will build over time.
Tip: Whether your employer is covered by the new law or not, you should ask your employer if they offer a retirement plan. Federal law doesn’t require employers to offer a retirement plan, but many employers do provide a plan as a benefit to their employees. (There are different types of plans—in some plans, only the employer contributes.) If your employer does offer a retirement plan, ask for copies of documents that describe the plan, such as the SPD, automatic enrollment notice, and any other information about the plan. Participating in the plan can help you prepare for retirement.
How Much Will I Contribute to the Plan?
As a plan participant, you contribute a percentage of your pre-tax salary to your retirement plan account. Under auto enrollment, the plan will begin with a contribution level between 3% and 10%, as set by the plan. The specific percentage can be found in your automatic enrollment notice. The automatic contribution rate then increases by 1% each year until it reaches a maximum of 10-15% per year, with the maximum set by the plan.
If you want to contribute more or less than the automatic contribution level, you can change the contribution amount (or choose to stop making any further contributions) at any time by notifying your plan.
The dollar amount of your contributions is capped by the Internal Revenue Code. In 2025, the amount is $23,500. The dollar amount cap is higher for employees who are at least 50.
Tip: Make regular contributions even if they are small! Contributing to your plan account is an effective way to save for retirement. If you need to stop making your contributions, leave the money you’ve already contributed in the plan as it will generally grow over the years.
Do Employers Contribute to the Plan?
Your employer may also contribute to your 401(k). If your employer chooses to contribute, it may be a “matching contribution,” where the employer contributes a percentage of your own contribution, or a “non-elective contribution,” where the employer contributes for all eligible employees, even if they don’t themselves contribute. In some cases, an employer makes both kinds of contributions, but this is less common.
An employer contribution, whether a match or a direct contribution, can be a valuable feature of the plan for employees. It means that both your own contributions, as well as the employer contributions, are being set aside and invested for your retirement.
Tip: Ask your plan representative about the contribution percentages for your plan and whether there is an employer matching or nonelective contribution. You should also be able to find this information in the SPD or automatic enrollment notice. If your plan offers an employer contribution, staying enrolled will mean you have an added boost to your retirement savings!
Can My Contributions Be Forfeited?
The contributions you make, plus any investment gains (or losses), are immediately vested—meaning they can’t be forfeited or taken away. If you leave your employer, you can remain as a participant in that plan and maintain the funds there (unless your account is under $7,000 and the plan requires that the account be distributed to you), take the funds with you, or roll them over to an individual retirement or in some cases to the plan of a new employer.
Depending on the plan’s vesting schedule, employer contributions may also be nonforfeitable. A vesting schedule means that a plan requires participants to complete a certain number of years of employment before employer contributions are considered vested. If the employee leaves employment before a plan vesting period is satisfied, the employee may forfeit all or a portion of the employer contributions and the income they have earned.
Tip: Ask your plan representative or check the SPD for how long you need to work for your employer for you to become vested in any employer contributions. If your plan offers an employer contribution, think about staying at least until you vest in the employer contribution to boost your retirement savings!
How Contributions to the Plan are Invested
Most 401(k) or 403(b) plans provide participants a menu of investment options. The people who select these investment options are called fiduciaries – meaning they are required by law to act under a high duty of care to protect the plan and the interests of participants and beneficiaries. The plan will provide information about the available investments, for example information about their risk, rate of return, and investment fees and expenses. Based on that information, plan participants can direct their contributions to the investment options of their choice.
If a participant doesn’t provide investment direction, their contributions will be directed to a qualified default investment alternative (QDIA). QDIAs must satisfy the U.S. Department of Labor’s regulatory criteria and are generally designed for long-term growth and to be diversified to minimize the risk of large losses. The participant always has the option to transfer their contributions out of the QDIA to other plan investments.
Why Stay in the Plan After Auto Enrollment?
We all face demands on our budget but, if possible, it’s important to start contributions to your plan early, make regular contributions to your retirement account, and leave the money there until retirement.
Keeping your contributions and any matching contributions from your employer in the plan can be an effective and powerful way to save for retirement. Ideally, you will continue to make regular contributions! But if you must stop, leave the money you’ve already contributed in the plan.
The funds you invest will accrue earnings, and those earnings will accrue earnings – in other words, the earnings will compound. Inevitably, there will be losses, too, but studies have shown that, over time, investments will grow. The longer you save over the course of your working life, the better chance you have of providing for a secure retirement.
Tip: The Department of Labor has a good illustration of the value of saving early for retirement.
Citations
- Benefits Law Advisor. Secure Act 2.0. Benefits Law Advisor, www.benefitslawadvisor.com/wp-content/uploads/sites/960/2022/12/Secure-Act-2.0-extract-of-CAA-2023-1.pdf
- Brandolph, David. Vanguard’s Rosy 401k Study Doesn’t Reflect Reality for Most Americans. Pension Rights Center, pensionrights.org/vanguards-rosy-401k-study-doesnt-reflect-reality-for-most-americans/
- IRS. Retirement Topics – Automatic Enrollment. IRS, www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-automatic-enrollment
- IRS. 401(K) Limit Increases to $23,500 for 2025, IRA Limit Remains $7,000. IRS, www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000
- IRS. Auto Enrollment – Can an Employee Withdraw Any Automatic Enrollment Contributions from the Retirement Plan? IRS, www.irs.gov/retirement-plans/faqs-auto-enrollment-can-an-employee-withdraw-any-automatic-enrollment-contributions-from-the-retirement-plan
- IRS. Retirement Plans FAQs Regarding Automatic Contribution Arrangements IRS, www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-automatic-contribution-arrangements-automatic-enrollment-arrangements
- Thrift Savings Plan. Investing Strategies The Thrift Savings Plan (TSP), www.tsp.gov/investing-strategies/?utm_campaign=64808889&utm_medium=email&utm_source=govdelivery#compound-earnings
