Do You Know About Auto-Escalation? Find Out Here

In 2025, certain businesses that have established retirement plans after December 29th, 2022, must automatically enroll their employees in their company-sponsored retirement plan. As a plan participant, you may feel hesitant about this, however, there are advantages to participating in to your employer’s plan. Some plans also come with an auto-escalation feature. If you’re unfamiliar with auto-escalation, don’t worry. We’ll give you all the details, so you’ll be well informed on the subject.

Key Takeaways:

• Auto-escalation automatically increases an employee’s contribution rate on an annual basis.
• The maximum percentage for automatic escalation is 15% of a participant’s salary, typically done in 1% increments.
• Allowing automatic escalation can work in a participant’s favor.

What is auto-escalation?

SECURE Act 2.0 not only requires certain businesses with retirement plans that were established after December 29th, 2022 to automatically enroll their employees in their plan, but they must also include automatic escalation features. This means that a participant’s plan contribution will start at a default percentage determined by their employer. Then, employee contributions will increase periodically until they reach the maximum allowed amount between 10-15% of their salary.

It’s necessary to note that the maximum percentage applies only to the auto-escalation feature. Participants may decide to contribute up to the maximum limit of $23,000 in 2024 for non-catchup contributions.

What are the benefits of auto-escalation?

Auto-escalation can make saving for retirement even easier for you, the plan participant. Instead of keeping your contributions stagnant, auto-escalation can give you more return on your investment by increasing your contributions each year. With auto-escalation, you can sit back and relax while your retirement savings continue to grow. You won’t need to worry about adjusting your contribution amount unless you wish to.

Additionally, because auto-escalation gradually increases your savings amount by at least 1% each year, you may be saving more for retirement than you would have initially planned, almost like finding extra cash hidden in the couch cushions!

Are there disadvantages to auto-escalation?

While auto-escalation can help take the burden of saving for retirement off your shoulders, there are a few things to consider. For instance, if you were contributing at too low of a percentage from the start, you may not be saving the amount you need for your retirement.

Another factor is your personal budget. If you’re already contributing as much as you can, then increasing your contributions each year may not be the right choice for you. It’s best to look at your finances and determine if auto-escalation would be a good fit for you. To calculate what you think you might need for retirement, take a look at your retirement outlook calculator here.

Conclusion:

In 2025, auto-enrollment and auto-escalation of certain retirement plans will be law. But this is an opportunity for participants like you to get a head-start investing in your retirement. To make adjustments to your account visit your participant dashboard at any time. For questions about your employer’s auto-escalation feature, reach out to your plan administrator.