SECURE 2.0 Act – Section 101. Expanding Automatic Enrollment in Retirement Plans

SECURE 2.0 Act – Section 101. Expanding Automatic Enrollment in Retirement Plans

Effective January 1, 2025, this provision will require newly established qualified defined contribution plans (e.g., 401(k) and 403(b) plans) to institute an automatic enrollment feature for participants with a starting deferral percentage ranging from 3%-10% of compensation, unless the participant opts out of being automatically enrolled or elects to defer a different percentage of their compensation.

Further, effective the first day of each plan year after implementation, participant deferral percentages are required to be increased by 1% up to at least 10%, but not more than 15%. Again, the participant has the option to opt-out of the 1% increase or elect a different percentage for contribution.

Any qualified plan established prior to the January 1, 2025, is not required to implement the automatic enrollment or automatic increase provisions.

Additionally, the following plans are excluded from the new requirements:

1. Small businesses with ten or fewer employees
2. New businesses that have been operating for less than three years
3. Governmental and church plans

Regardless of whether automatic enrollment is added to a plan by choice or as a requirement of this provision in the future, it is important for 401(k)/403(b) plan sponsors and fiduciaries to be aware of the liability exposure that can result if certain other elections are not made.

Specifically, ERISA Sec. 404(c) elections, in conjunction with Qualified Default Investment Alternative (QDIA) elections, can effectively mitigate the liability that the sponsor and fiduciaries would otherwise bear for participant investment losses.

Below is a short video explaining the benefits and application of 404(c) and QDIA elections.

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.