401(k) Auto-Enrollment

401(k) auto-enrollment is a plan feature that signs eligible employees up for the 401(k) plan automatically, at a default percentage of pay. Employees keep control, because they can opt out or choose a different percentage.

Auto-enrollment is not always optional. Many 401(k) plans created after December 29, 2022 must now include it, while older plans can still decide whether to adopt it.

How Does 401(k) Auto-Enrollment Work?

The plan document sets a default deferral rate, and payroll withholds that percentage from each paycheck once an eligible employee is enrolled. The document must also say that employees may choose not to defer or may pick a different percentage.

Employees must receive a notice before automatic enrollment starts and a similar notice each year. The notice tells them what will be withheld and how to opt out.

Contributions also need a home before the employee picks any funds. Federal rules allow the plan to place them in a default investment, and an employer that meets those rules can limit its fiduciary liability for resulting losses.

What Are the Types of Automatic Enrollment Plans?

A basic automatic enrollment plan has the fewest rules. An eligible automatic contribution arrangement (EACA) adds specific notice requirements and can let employees withdraw automatic contributions within 30 to 90 days. A qualified automatic contribution arrangement (QACA) is a safe harbor design.

A QACA passes certain annual nondiscrimination tests automatically, while basic plans and most EACAs still face testing. An employee who withdraws under an EACA pays tax on pre-tax amounts, owes no 10% additional tax and forfeits the related match. The IRS explains these arrangements in its auto-enrollment FAQs.

How Do Default Rates and Auto-Escalation Work?

Auto-escalation raises the default percentage on a set schedule, so employees save more without taking action. A QACA must start at 3% or more and increase each year an employee participates.

Under the SECURE 2.0 mandate, the first-year default must be at least 3% and no more than 10%. It then rises by 1 percentage point each plan year until it reaches at least 10%, and it may not exceed 15%, as section 414A of the tax code provides.

Is 401(k) Auto-Enrollment Required Under SECURE 2.0?

For many new plans, yes. Section 414A requires new 401(k) and 403(b) salary reduction arrangements to include automatic enrollment for plan years beginning after December 31, 2024. Plans established before December 29, 2022 are excepted.

Other exceptions cover governmental and church plans, SIMPLE 401(k) plans, businesses in existence less than 3 years, and employers that have not normally employed more than 10 employees. A wider overview of the law appears in the SECURE 2.0 Act entry.

Treasury proposed regulations in January 2025. Final regulations cleared federal review in October 2026 but, as of early November 2026, a Federal Register search showed them unpublished. Until final rules apply, the proposed regulations treat a plan as compliant if it follows a reasonable, good faith reading of the statute.

What Does HR Need to Do to Run Auto-Enrollment?

HR usually coordinates the steps the plan provider cannot do alone. That includes sending the initial and annual notices, confirming which employees are eligible and passing accurate deferral percentages to payroll.

HR should also keep a record of employees who opt out, along with their contribution and investment choices. The IRS and Department of Labor small business guide says a plan's recordkeeping system should track those decisions.

How Does HR Cloud Fit Into 401(k) Auto-Enrollment?

HR Cloud's payroll integration page describes two-way integrations with payroll systems, including ADP, UKG and QuickBooks. Its onboarding software page describes sending forms, collecting signatures digitally and tracking which tasks are complete.

Neither page describes 401(k) administration, plan enrollment, deferral calculations or notice delivery. HR must still work with the plan provider and payroll vendor to set the default rate, issue notices and process opt-outs. HR Cloud is not a legal advisor and does not ensure plan compliance.

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Frequently Asked Questions

Q: What default percentage should a plan use?

A: The plan sets it. Under the SECURE 2.0 mandate, the first-year default must be between 3% and 10%.

Q: Can employees opt out of auto-enrollment?

A: Yes. Employees can elect not to contribute or choose a different percentage.

Q: Can employees get automatic contributions back?

A: Only if the plan is an EACA that allows it, within a window of 30 to 90 days after the first contribution. The employee pays tax on pre-tax amounts and forfeits the related match.

Q: Does auto-enrollment require an employer match?

A: No for basic plans and EACAs. A QACA requires either a match or a 3% nonelective contribution.

Q: Does the mandate apply to my existing plan?

A: Plans established before December 29, 2022 are excepted, so many older plans are not covered. Confirm your plan's status with your provider or advisor.

Q: Does auto-enrollment apply to 403(b) plans?

A: Section 414A also covers 403(b) salary reduction arrangements. The IRS and Department of Labor guide adds that the feature can be used in 403(b), governmental 457(b) and SIMPLE IRA plans.