SECURE 2.0 mandatory Auto Enrollment and Auto Escalation changes are coming in 2025. Are You Prepared?

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The Secure Act 2.0 mandates Auto Enrollment and Auto Escalation starting January 1, 2025. Here’s what Plan Sponsors need to know and how The Contractors Plan will help clients prepare.

What to Expect

Automatic Enrollment:
Beginning in 2025, 401(k) plans that meet certain criteria must include an automatic enrollment feature. This means that all eligible employees who are not currently deferring must be automatically enrolled in the retirement plan at a minimum deferral rate of 3% of their eligible compensation. This feature of SECURE 2.0 encourages higher participation rates in retirement savings programs by reducing the barrier to entry for employees and makes it easier for employees to start saving for retirement without taking initial action. Employees can opt out of deferring at any time. If participants choose to opt-out prior to 90 days from the first auto-deferral contribution, they may request a refund of those deferral contributions.

Automatic Escalation:
In addition to automatic enrollment, these plans must also include an automatic escalation feature. Each year, the deferral rate will automatically increase by 1% until it reaches at least 10% (but not more than 15%). This gradual increase helps employees build their retirement savings over time without needing to make ongoing decisions about their contribution rates. By steadily increasing the contribution rate, employees can enhance their savings potential, helping to secure a more robust retirement fund. Employees can opt out of auto escalation at any time.

Next Steps:

Determine if your Plan is Impacted. The Contractors Plan will consider all 401(k) plans established after December 29, 2022, as subject to the mandatory Automatic Enrollment and Automatic Escalation provision of Secure 2.0 unless the plan sponsor can claim an exemption based on the criteria and conditions below. Based on the client information on file, The Contractors Plan will be directly contacting clients to confirm your plan is impacted or if your plan meets the conditions for an exemption.

Criteria	Condition for Exemption	Exempt or Not?
Employer Size	10 or fewer employees	Exempt
Business Age	Business operating for less than 3 years	Exempt
Retirement Plan Type	Existing 401(k) plans established before December 29, 2022, are not subject to the new rules	Exempt

*Note that once your plan no longer meets any of the exemption criteria, it is immediately subject to these provisions.

Review and Update Plan Documents:
The Contractors Plan will provide impacted clients with the final amendments to reflect the new automatic enrollment and escalation requirements in 2025. This step is crucial for compliance and for avoiding potential penalties. Until these amendments are available, the plan is permitted to operate without them in good faith.

Communicate Changes:
Clearly communicate these changes to your employees so they are prepared for the new automatic enrollment process. Transparency will help employees understand how these changes will affect their paychecks and retirement savings. The Contractors Plan will provide employers with materials to distribute to employees relating to this requirement.

Implement Administrative Adjustments:
Ensure your payroll vendor is able to make any changes necessary to implement auto enrollment and auto escalation. The Contractors Plan provides an easy-to-use online deferral process that allows your employees to make elective deferral changes, including an opportunity to opt-out of the mandatory auto-deferrals. Consider moving to this process to reduce your administrative burden and streamline the process for your employees.

By proactively addressing these changes, employers can ensure compliance with the new rules and help their employees achieve greater retirement readiness. If you aren’t sure if your plan falls within these new guidelines, please contact us.

The Contractors Plan understands the unique challenges that Davis-Bacon and Service Contract Act contractors face when creating and managing a bona fide employee benefits plan. We specialize in prevailing wage retirement, major medical, specialty benefits, compliance and more. We’ve assembled our knowledge into a flexible, easy-to-use solution that offers great benefit options for your employees.

For over 40 years, The Contractors Plan has designed and administered healthcare, retirement, and specialty benefits programs for government contractors.  Our products and services help employers save money, reduce their workload, and stay compliant with local and federal government mandates and regulations.

When offering employee benefits products through The Contractors Plan, you gain the administrative solutions that make working with prevailing wage contractors possible. Our powerful eligibility management process is designed specifically for government contractors, so you can reduce your workload and keep winning jobs.