Secure 2.0 Act will require companies to auto enroll workers into 401(k) plans

Only 52% of employees have access to a 401(k), according to a survey by Betterment at Work. (iStock)

Even though 69% of private industry workers had access to workplace retirement benefits, only 52% participated in them, according to a report by the Department of Labor

That may soon change, thanks to the Secure 2.0 Act, which was signed into law in December.

Beginning in 2025, Secure 2.0 will require companies with new 401(k) and 403(b) plans to automatically enroll their employees into these plans at minimum contribution rates of 3% to 10%. The rate will increase 1% each year up to 15%. 

Small businesses with 10 or fewer employees, new businesses, church plans and governmental plans will be exempt, according to an official summary of the Act. 

"When retirement is a decade or more away, it’s easy for individuals to forget to make time to set up their 401(k) plan," General Manager for Betterment at Work Kristen Carlisle said. "We’ve seen firsthand that the inclusion of auto-enrollment and auto-escalation in a 401(k) plan can alleviate this passivity, lead to higher retirement savings and better financial outcomes for employees; what’s more, auto-enrollment benefits employers by increasing plan participation and helping companies avoid potential plan compliance complications down the line."

Secure 2.0 also allows plan sponsors to automatically transfer an employee's low-balance retirement account to a new plan once they leave the job. 

"The change could be especially useful for lower-balance savers who typically cash out their retirement plans when they leave jobs, rather than continue saving in another eligible retirement plan," Fidelity Investments said in a blog post

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Secure 2.0 Act aims to revamp retirement savings system: What it means for you

Secure 2.0 will expand access to 401(k) plans

Only 52% of employees have access to a 401(k), according to a survey by Betterment at Work. But Secure 2.0 aims to change that. 

Beginning in 2025, Secure 2.0 will allow part-time employees who have worked for at least two consecutive years with at least 500 hours of annual service to be eligible for enrollment in their employer’s 401(k) plans. The previous threshold was three years.

"We congratulate Congress for passing the bipartisan SECURE 2.0 Act, which improves individuals' ability to save for retirement, expands access to retirement plans, and eases plan administration for employers," Dee Sawyer, T. Rowe Price's head of Retirement Plan Services and U.S. Intermediaries, said in a statement. "We are pleased to see many of the provisions we have supported become law, and we would specifically like to thank our Maryland Senator, Ben Cardin, for his leadership with retirement policy."

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Secure 2.0 Act: Student loan payments will count toward 401(k) matching contributions

What is the Secure 2.0 Act?

The Secure 2.0 Act is a piece of legislation that aims to make it easier for Americans to save for retirement. It was part of a $1.7 trillion omnibus spending package that was passed by Congress and signed into law at the end of 2022. 

It is a follow up to the 2019 SECURE Act.

Secure 2.0 has established sweeping changes to the retirement savings system which will be implemented in the coming years. Here are some of its highlights.

  • The required minimum distribution (RMD) age will increase to 73 and then to 75 in 2033.
  • Catch-up contributions for most workplace retirement plans will increase to $10,000 for workers between the ages of 60 through 63, beginning in 2025.
  • Beginning in 2024, employers can provide their employees with 401(k) contribution matches based on their workers’ student loan payments.
  • Plan sponsors can create "emergency savings accounts" that allow non-highly compensated employees to make Roth after-tax contributions to a special savings account within the retirement plan.

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