Legislation moving through Congress would prompt more employers to automatically enroll new employees in 401(k) or similar defined contribution retirement plans and to increase participants' savings rates over time. Even without new mandates to do so, however, more employers are adopting automatic features to increase employee participation and to encourage employees to save enough for a secure retirement.
On March 29, the House overwhelmingly approved the bipartisan Securing a Strong Retirement Act by a vote of 414-5. The bill is dubbed "SECURE Act 2.0" because it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019.
Mandatory Automatic Enrollment/Escalation
Among its many provisions, SECURE Act 2.0 would require employers that establish new defined contribution plans to automatically enroll newly hired workers, once they're eligible, in the plan at a pretax contribution level of 3 percent of the employee's pay. This level would increase annually by 1 percentage point up to at least 10 percent but not more than 15 percent of the employee's pay. Employees could affirmatively elect a different contribution.
If a participant has not made an investment election, contributions would be defaulted into a "qualified default investment alternative," which is typically a target date or balanced fund, or a managed account.
These provisions would only apply to new 401(k) and 403(b) plans established after the...
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