The IRS is rolling out Automatic Enrollment for Retirement Plans

Saving for retirement is something everyone should be doing, but only 55% of industry workers have retirement plans (U.S. Bureau of Labor Statistics).

Beginning in 2025, the IRS and the Department of Labor have announced automatic employer-sponsored retirement plan enrollment for eligible employees.

Once implemented, this plan is meant to help millions of workers build a strong financial future without any effort. 

SECURE 2.0 Act and Eligible Automatic Contribution Arrangement (EACA)

In 2022, the SECURE 2.0 Act mandated that new 401(k) and 403(b) retirement plans must have an automatic contribution from employers to all employees.

The mandatory automatic enrollment is a default deferral percentage that is automatically contributed to a retirement fund unless the employee withdraws within 90 days of the notice. 

How does EACA work?

Under the SECURE 2.0 Automatic Enrollment, the employee receives a notice of the default automatic enrollment. Other requirements are on the employer.

• Employers must automatically enroll eligible employees in retirement plans
• Default contribution rates start between 4% and 6% of pre-tax wages
• Plans must include annual automatic escalation of contributions until the designated maximum, often around 1% increase, up to 10%.
• Employees receive notice and can opt out or change their contribution level 

What Is an Example of How EACA Would Work?

If you earn $50,000 and your employer sets a 5% default rate, $2,500 annually will be contributed to your retirement account automatically because of EACA.

Unless you choose to opt out, a percentage will be automatically contributed to a 401(k) or 403(b).

What are the Benefits of the Automatic Retirement Enrollment?

More employees will be given a 401(k) or 403(b) retirement plan automatically meaning:

• Younger and lower-income workers will automatically be given a retirement plan
• Compounded interest over time can create a nice nest egg
• Eliminates the need for enrollment, paperwork, and reduces procrastination

Note: Even if you stay at the default contribution rate set by your employer, you can still gain significant wealth over time because of the automatic contributions. 

Get Expert Help on Further Retirement Planning

At Tax Attorneys of America, we help both employers and employees navigate the SECURE 2.0 Act and other retirement planning. 

If you need assistance, understanding enrollment requirements, selecting contribution strategies, ensuring compliance with new regulations, and minimizing other tax liabilities, feel free to reach out to the Tax Attorneys of America with your questions.  

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