Mandatory Auto-Enrollment: What Businesses Need to Know

Currently, it’s optional to automatically enroll your employees in your company’s retirement plan—but that’s changing. What was once voluntary will be mandated federally for certain new plans beginning in 2025. So that you’re fully informed of your responsibilities as a business owner, let’s explore the ins and outs of this new requirement.

Key Takeaways:

• In 2025, the federal government will mandate auto-enrollment features to be adopted as part of certain employer retirement plans.
• Eligible employees must be auto-enrolled in certain company-sponsored retirement plans.
• Eligible employees who are auto-enrolled can choose not to participate by opting out.

What is auto-enrollment and why is it mandatory?

Auto-enrollment is a retirement plan feature that automatically signs employees up for their employer’s retirement savings plan, whether that’s a 401(k) or IRA. It exists to help employees save for retirement by participating in an employer-sponsored retirement plan. SECURE Act 2.0 mandates that businesses that meet certain criteria must automatically enroll their employees in their retirement plan, increasing demand for plans with auto-enrollment features. Businesses with more than 10 employees and have been in business for over three years are required to include auto-enrollment.

How does auto-enrollment work in practice?

Once an employee is enrolled in an ePlan Services retirement plan, a percentage of their paycheck is transferred to their 401(k) account. The employee can decide to opt out of enrollment at any time. Within 90 days of automatic enrollment, participants who decide to opt out are able to withdraw the automatic contributions that were made.

If you, as the employer, fail to set up auto-enrollment, and are deemed to fall under the requirements, we will remind you to amend your plan. For non-safe harbor plans, there are no maximum or minimum deferral rates. A safe harbor plan has two options, a single flat-rate plan that never increases or a plan that auto increases. However, the required minimum initial rate of deferral for safe harbor auto-increase plans is 3% and that rate is required to escalate 1% per year to a maximum of 15%.

Who is excluded from the auto-enrollment mandate?

If you are an employer whose retirement plan meets the following criteria, your company will not be required to include automatic enrollment.

• Your plan was established before December 29, 2022: the date of the bill enactment.
• Your business has 10 or fewer employees.
• You have a new business that’s been in existence for less than three years.
• You’ve adopted a SIMPLE 401(k).
• You have a governmental or church plan.

*Please note that ePlan Services does not support SIMPLE 401(k), governmental, or church plans.

Your plan sponsor can choose to opt out of auto-enrollment by stating that your business does not meet the criteria.

How does ePlan Services set up auto-enrollment?

With ePlan Services, your auto-enrollment setup is a breeze. We’ll take care of the process, so you can focus on building your business. Initially, your plan sponsor will receive a task card alerting them that it’s time to set up your plan’s auto-enrollment. Your notification will contain the due date for your ePlan Services retirement plan enrollment process. If you’d like to adjust your retirement plan settings any time after your auto-enrollment has been set up, please contact our knowledgeable service team to assist with your needs.

Conclusion:

The government wants to encourage more employees to participate in employer-sponsored retirement plans with the hopes that these employees will be on the right path toward saving for retirement. As a result, starting in 2025, auto-enrollment for certain eligible retirement plans will be law. For more information on retirement plan auto-enrollment, visit our help center today!