If setting aside money for retirement was part of your 2025 resolutions—or simply a standing goal you revisit every year—now’s a good time to look back on those goals of earlier in the year and review your progress. We’re well into the year, so how close are you to staying on track?
Being as it is that life rarely follows a predictable pattern year over year, it’s common that one may fall behind in their retirement savings plan over the course of a year or a few. In those cases, catch-up periods are necessary. That is, you’ll need a period of a year or a few to get your retirement savings back on track with meeting your future goals.
Whether this year is a catch-up year or a year of falling behind, there are a few key changes you’ll want to know about. Depending on your specific situation, you could benefit from these changes so as to retire earlier and more comfortably, or leave a more considerable legacy behind.
Over the next few weeks, we’ll break down three notable updates introduced by the SECURE 2.0 Act, signed into law on December 29, 2022 and applicable as of this year. We’ll unpack each one in plain language—skipping the dense IRS jargon—so you can understand how it works and decide if it fits into your own retirement plan.
Today’s focus: the new auto-enrollment feature for recently launched employer retirement plans.
Retirement Plan Auto-Enrollment
One of the SECURE 2.0 Act’s main goals is simple: get more Americans saving for retirement, and doing so on a more consistent basis. To do that, the law now requires certain new employer-sponsored retirement plans—like 401(k)s and 403(b)s—to automatically enroll eligible employees.
This setup is officially called the Eligible Automatic Contribution Arrangement (EACA). If you are participating in an employer-sponsored retirement plan that this applied to, you can still opt out, but if you don’t, you’re automatically signed up and contributing.
How it Works
If your employer sets up a new 401(k) or 403(b) plan, every eligible worker is enrolled by default.
- Starting point: Year one’s default contribution rate is 3% of your pre-tax pay.
- Automatic increases (Mandatory Annual Escalation): Each year, your contribution rises by 1% until it hits at least 10%, but not more than 15%.
Here’s a quick example to show how it would work over the course of employment for a qualified employee:
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- Year 1: You’re auto-enrolled at 3%.
- Year 2: Contribution bumps to 4%.
- Year 5: You’re up to 7%.
- Year 8: You hit 10% (the minimum cap).
- Year 13: If your plan uses the 15% max, you reach that rate and stay there unless you change it.
To clarify: you’re not locked into these numbers—you can set your own percentage right from the start or in later years. The above example is simply what happens if you take no action (and it may be perfectly suitable to your savings goals). And remember, since these contributions come out before taxes, they reduce your taxable income (within IRS limits).
Speaking of those established limits, that’ll be key to Part II of the retirement plan changes we’re discussing, so be sure to catch that next week.
Exemptions–Who aren’t Included?
Not all employer-sponsored retirement plans have to enact the auto-enrollment feature detailed above. Exceptions include:
- Plans created before Dec. 29, 2022 (that is, when the law was enacted) – Only newer plans are covered.
- Small employers with 10 or fewer workers – They can opt out entirely.
- New businesses under three years old – They’re given extra time before the rule applies so they don’t have to make these modifications to their existing plans immediately.
Let’s take another look at a simple example for some quick clarity.
Meet the fictional company Smith & Co. Snow Shovels & Snow Blowers, LLC. Founded in 2023, they started a 401(k) in 2024 with just eight employees—so they’re exempt due to their size (exemption #2 above).
If they hire six more people in 2025, bringing the team to 14, they still wouldn’t have to comply immediately because they’re under the three-year business rule (exemption #3 above). But come 2026, with three years in operation and more than 10 employees, neither exemption any longer applies. They’d then need to add auto-enrollment to their plan.
Here’s an important note: Although even if a company’s 401(k) plan isn’t mandated to offer auto-enrollment nor the automatic annual escalation for employee contributions, they still can choose to set these features up within the plan.
How You Can Benefit
If your employer is relatively new or if they’ve only recently set up a retirement savings plan, like a 401(k), you might already be enrolled in a plan without realizing it—meaning you could be saving for retirement automatically.
Check your current contribution rate and see if you’re missing out on any employer matching, which you should be sure to take advantage of to the extent your circumstances allow. If you find that the max employer matching percentage is higher than your current contribution rate, consider an increase to your contributions to hit that match percent.
And regardless of whether your retirement plan falls under the SECURE 2.0 act or otherwise, reviewing your retirement plan regularly is always smart.
Of great help when doing a periodic review of your retirement savings strategy is through the use of these Financial Planning Tools:
- Investment Risk Questionnaire
- Investment Calculator
- Budget Worksheet
- Life Insurance Calculator
If you’d like a more thorough review—covering taxes, Social Security, estate planning, and more—book a no-obligation session with a retirement plan design specialist using the button below:
Retirement Plan Account Change Part II–What’s Next?
In Part II, we’ll look at an enhanced “catch-up” contribution rule under the SECURE 2.0 Act that’s especially valuable for savers who are nearing retirement.
If you’d like a refresher on what catch-up contributions are and how they work, take a look at our article, Catch-up Contributions–a Provision to Supercharge Age 50+ers Retirement Plan.
