Automatic Enrollment
A 401(k) plan feature that automatically enrolls eligible employees at a default contribution rate unless they actively opt out.
What is Automatic Enrollment?
Automatic enrollment (also called auto-enrollment) is a 401(k) plan design feature that signs eligible employees up for the retirement plan by default, deducting contributions from paychecks automatically unless employees take action to opt out. Under SECURE 2.0 (2022), new 401(k) and 403(b) plans established after December 29, 2022, are required to include automatic enrollment at a minimum 3% contribution rate, increasing by 1% per year up to at least 10%. Existing plans were not required to add auto-enrollment but are encouraged to do so. Research consistently shows that auto-enrollment dramatically increases retirement plan participation — particularly among lower-income, younger, and minority workers — because inertia (default bias) causes most employees to simply accept the default. Most plans also pair auto-enrollment with automatic escalation, which increases the contribution rate by 1% per year to help employees reach adequate savings rates over time. The default contribution rate and investment (often a target-date fund) vary by employer.
Example
A 28-year-old starts a new job and receives an HR packet about the 401(k) plan. Because of auto-enrollment, she is automatically enrolled at a 3% contribution rate invested in a 2060 target-date fund — she does nothing. Over the next 10 years, automatic escalation increases her contribution by 1% per year until she reaches 10%. Studies show she would likely not have enrolled at all without auto-enrollment, delaying retirement savings by years and costing her tens of thousands in compound growth.
Source: U.S. Department of Labor — Automatic Enrollment 401(k) Plans