The Secure Act 2.0 was designed to encourage greater retirement savings by increasing access to retirement plans and providing incentives to boost employee participation. Historically, employees had to make an active election to participate in their employer’s retirement plan. Auto-enrollment is designed to increase employee participation in retirement savings by automatically enrolling employees in the plan, rather than requiring them to opt-in. Auto-enrollment also simplifies the process for employees, making it easier for them to begin contributing to their retirement funds without having to take the initial step themselves.

Who is required to adopt?

Section 101 of the SECURE 2.0 Act requires 401(k) and 403(b) plans established after December 29, 2022 (the SECURE 2.0 date of enactment) to automatically enroll participants upon becoming eligible and include an auto-escalation provision unless an exception is met.

Exceptions include:

• Any 401(k) or 403(b) plan established prior to December 29, 2022, are grandfathered and are not required to adopt this provision.
• Small businesses with 10 or fewer employees.
• Companies that have been in business for less than 3 years.
• Church plans and governmental plans.
• Section 101 does not apply to a multiple employer plan (MEP) or pooled employer plan (PEP) as a whole. However, it does apply to individual employers participating in a MEP or PEP, as if they were adopting a single employer plan, effective on or after December 29, 2022.

What are the requirements of this provision?

For those required to adopt this provision, Section 101 is effective for plan years beginning after December 31, 2024. The initial automatic enrollment amount must be at least 3%, but not more than 10%. Each subsequent year, that amount must be increased by 1% until it reaches at least 10%, but not more than 15%.

If a plan sponsor failed to implement Section 101 of the SECURE 2.0 Act in a timely manner, they should take the following steps as soon as possible:

1. Assess Compliance Gaps – Identify specific areas where implementation fell short, such as automatic enrollment or escalation provisions.
2. Consult Legal and Compliance Experts – Work with the plan’s third-party administrator or ERISA counsel to understand potential penalties and corrective actions.
3. Communicate with Service Providers – Coordinate with recordkeepers, payroll providers, and third-party administrators to ensure proper implementation.
4. Implement Corrective Actions – Apply necessary plan amendments, adjust payroll processes, and retroactively enroll eligible employees if required. Formal amendments are required to be made by December 31, 2026).
5. Consider Voluntary Compliance Programs – If the failure constitutes a plan compliance issue, explore the IRS’s Employee Plans Compliance Resolution System (EPCRS) for correction options.
6. Notify Affected Participants (if applicable) – If employees were impacted, communicate any corrective measures, including retroactive contributions or adjustments.
7. Enhance Internal Controls – Strengthen internal procedures to prevent future compliance lapses, such as regular plan reviews and training.

Plan sponsors should take proactive steps to ensure compliance with SECURE 2.0’s auto-enrollment provisions, minimizing risks and maximizing employee participation in retirement savings. Need assistance? We can help.