What Is Automatic Enrollment in a 401(k)?

Research. Education. Perspective.

Automatic enrollment changes what happens when an eligible employee does nothing.

Under a traditional manual-enrollment system, an employee may need to affirmatively sign up before payroll contributions begin.

Under automatic enrollment, the plan generally starts withholding a stated percentage of pay and contributing it to the employee's 401(k) unless the employee:

• opts out, or
• chooses a different contribution rate.^[1][5]

The employee still has a choice.

The difference is the default.

Key Takeaways

• Automatic enrollment generally starts 401(k) payroll contributions unless the employee opts out or elects another percentage.^[1]
• For plan years beginning after 2024, SECURE 2.0 generally requires certain 401(k) and 403(b) arrangements established on or after December 29, 2022, to use automatic enrollment unless a statutory exception applies.^[2][3][4]
• For arrangements subject to that mandate, the initial default rate generally must be at least 3% and no more than 10% of compensation.^[2]
• The default generally increases by one percentage point after each completed year of participation until reaching at least 10%, and the statutory maximum default rate is 15%.^[2]
• Major exceptions include certain pre-enactment plans, SIMPLE 401(k)s, governmental plans, church plans, qualifying new businesses and qualifying small businesses.^[2][3]
• An employee can generally choose not to participate or can elect a contribution rate different from the default.^[1][5]
• Automatic enrollment does not itself guarantee an employer match.
• The ordinary 2026 employee elective-deferral limit still applies: $24,500 for most 401(k) plans, before eligible catch-up contributions.^[7]
• An EACA includes a special permissible-withdrawal feature that can allow default contributions and attributable earnings to be withdrawn within 90 days.^[1][5]
• If a participant does not choose an investment, default contributions can be placed into a qualified default investment alternative under applicable Department of Labor rules.^[2][8][9]

What Is Automatic Enrollment?

> ROIStreet Definition > > Automatic enrollment is a retirement-plan feature under which an eligible employee is treated as electing a stated payroll contribution unless the employee affirmatively opts out or chooses a different contribution amount.

The employee is not permanently committed to the default percentage.

The employee generally has the right to make an affirmative election.

For example, a plan might automatically enroll an eligible worker at:

4% of compensation

The worker could potentially choose:

• 0%
• 2%
• 6%
• 10%
• another plan-permitted rate

subject to the plan's election procedures and federal contribution limits.

Manual Enrollment vs. Automatic Enrollment

The most important difference is behavioral rather than tax-related.

Automatic enrollment changes the default from nonparticipation to participation.

Does Automatic Enrollment Mean Participation Is Mandatory?

No.

IRS guidance states that an automatically enrolled employee must have the opportunity to elect:

• not to contribute, or
• to contribute a different amount.^[1][5]

That means automatic enrollment is an opt-out system.

It is not the same as a mandatory employee contribution system in which the participant has no election.

Example: Changing the Default Rate

Assume:

• salary: $80,000
• plan default rate: 4%
• annual default contribution: $3,200

The employee reviews the plan and elects:

8%

The annual employee contribution would instead be:

$6,400

before considering payroll timing, compensation definitions and annual federal limits.

The original 4% was a default—not a recommendation tailored to the employee.

SECURE 2.0 Expanded Automatic Enrollment

The SECURE 2.0 Act added a new automatic-enrollment requirement under Internal Revenue Code Section 414A.^[2][3]

For plan years beginning after:

December 31, 2024

certain 401(k) cash-or-deferred arrangements and certain 403(b) salary-reduction arrangements generally must satisfy automatic-enrollment requirements unless an exception applies.^[2][3][4]

This requirement is especially relevant to plans established after the law was enacted.

The December 29, 2022 Date

A major exception generally applies to qualifying 401(k) arrangements established before:

December 29, 2022

the date SECURE 2.0 was enacted.^[2][3]

For a 401(k) cash-or-deferred arrangement, IRS Notice 2024-2 explains that the establishment date generally turns on when the plan terms providing for that arrangement were initially adopted—even if their effective date was later.^[3]

A similar pre-enactment exception applies to qualifying 403(b) plans established before that date.^[2][3]

This is why the statement:

> “SECURE 2.0 requires every existing 401(k) to use automatic enrollment”

is incorrect.

SECURE 2.0 Initial Default Rate

For a plan subject to the new Section 414A requirement, the initial default contribution percentage generally must be:

• at least 3%, and
• no more than 10%.^[2]

A plan could therefore choose a compliant initial default such as:

• 3%
• 4%
• 5%
• 6%
• another permitted rate through 10%

The statutory range does not identify an ideal contribution rate for a particular employee.

Automatic Escalation

SECURE 2.0 also generally requires the default contribution percentage to increase over time.^[2]

The default generally increases by:

1 percentage point

for each plan year beginning after each completed year of participation.

The escalation continues until the default reaches a rate of at least:

10%

The default percentage generally cannot exceed:

15%.^[2]

Automatic-Escalation Example

Assume a plan starts an employee at:

3%

and uses one-percentage-point annual escalation.

A simplified progression could look like:

The participant can generally make an affirmative election rather than simply remaining at each default.

Can the Plan Escalate Above 10%?

Yes, within the statutory framework.

The law requires the escalation structure to reach a maximum default percentage of at least 10%, but not more than 15%.^[2]

A plan could therefore design its automatic escalation to stop at:

• 10%
• 11%
• 12%
• another permitted percentage through 15%

subject to the plan and applicable law.

Can the Employee Stop Automatic Escalation?

An employee generally retains the ability to make an affirmative contribution election.^[1][5]

That can include choosing a contribution rate different from the current default.

The exact election process and timing are plan-specific.

An employee who does not want the automatic rate to increase should review the plan's election procedures rather than assuming the escalation is irreversible.

Which Plans Are Generally Exempt From the SECURE 2.0 Mandate?

Section 414A contains several statutory exceptions.^[2]

Major categories include:

Pre-enactment 401(k) arrangements

Qualifying cash-or-deferred arrangements established before December 29, 2022.

Pre-enactment 403(b) plans

Qualifying 403(b) plans established before December 29, 2022.

SIMPLE 401(k) plans

SIMPLE 401(k) plans described in the applicable Code provision are excepted.^[2]

Governmental plans

Governmental plans within the applicable statutory definition are excepted.^[2]

Church plans

Qualifying church plans are excepted.^[2]

New businesses

The statute provides an exception while the employer and predecessor employer have generally been in existence for less than three years.^[2]

Certain small businesses

The statute provides an exception tied to employers that normally employ no more than 10 employees, with transition rules after the employer exceeds that level.^[2]

The small-business and new-business rules can become technical, especially when businesses grow or multiple-employer arrangements are involved.

Small-Business Transition

The statutory small-business exception does not necessarily disappear the instant an eleventh employee is hired.

Section 414A provides timing tied to the first taxable year in which the employer normally employed more than 10 employees.^[2]

Treasury and the IRS proposed additional rules in 2025 addressing how the employee count and transition would operate.^[2]

As of this article's review date, the proposed regulations state that before final regulations become applicable, plans can rely on a reasonable, good-faith interpretation of Section 414A.^[2]

For an employee, the practical point is simple:

A small employer's plan can fall under different automatic-enrollment rules as the business ages and grows.

Proposed Regulations vs. the Statute

Treasury and the IRS issued proposed regulations under Section 414A in 2025.^[2]

The statutory automatic-enrollment requirement itself applies to plan years beginning after 2024.^[2]

The proposed regulations state that final regulations would apply to plan years beginning more than six months after final regulations are issued.

For earlier applicable years, the proposal provides that a plan is treated as complying if it follows a reasonable, good-faith interpretation of Section 414A.^[2]

This distinction matters because some detailed administrative questions remain subject to regulatory development even though the statutory mandate is already effective.

What Is an Automatic Contribution Arrangement?

An automatic contribution arrangement, or ACA, is the broad concept.

The plan automatically contributes a default percentage of an eligible employee's wages unless the employee elects otherwise.^[1][5]

Two more specific structures often appear:

• EACA
• QACA

They are not interchangeable.

What Is an EACA?

An Eligible Automatic Contribution Arrangement, or EACA, is an automatic-enrollment structure that satisfies additional requirements under Internal Revenue Code Section 414(w).^[1][2][5]

One notable feature is the ability to provide a special permissible withdrawal of default contributions shortly after automatic enrollment.

Under Section 414A, a plan subject to the newer SECURE 2.0 mandate generally must use an EACA structure that also satisfies the added Section 414A requirements.^[2]

The EACA 90-Day Withdrawal

IRS guidance states that an EACA may allow automatically contributed amounts, including attributable earnings, to be withdrawn within:

90 days

of the first automatic contribution.^[1]

For arrangements subject to Section 414A, the statute requires the EACA to provide permissible withdrawals under the applicable rules.^[2]

This is different from an ordinary 401(k) hardship withdrawal.

Example: Permissible Automatic-Enrollment Withdrawal

Assume:

• employee is automatically enrolled
• first default contribution occurs March 15
• employee later decides the enrollment was not desired
• the arrangement permits the statutory EACA withdrawal

If the request is made within the applicable 90-day period, the employee can potentially receive the default contributions and attributable earnings under the EACA rules.^[1][5]

The distribution can be taxable to the extent applicable, but IRS rules provide a specific exception from the ordinary 10% additional early-distribution tax for qualifying automatic-enrollment permissible withdrawals.

This is a specialized rule and should not be confused with a general right to withdraw 401(k) contributions at any time.

What Is a QACA?

A Qualified Automatic Contribution Arrangement, or QACA, is a specific safe harbor 401(k) structure.^[1][4]

A QACA combines:

• automatic enrollment
• a prescribed default-contribution structure
• required employer contributions
• special nondiscrimination safe-harbor treatment

A QACA is therefore more than simply “a plan that automatically enrolls employees.”

EACA vs. QACA

The SECURE 2.0 Section 414A mandate and the older QACA safe harbor overlap in some concepts, but they are not the same law.

Automatic Enrollment Does Not Guarantee an Employer Match

A plan can automatically enroll employees without providing a matching contribution solely because of that feature.^[2]

Employer contributions depend on:

• the plan document
• match formula
• safe harbor structure
• other employer-contribution provisions

A QACA does require specified employer contributions, but automatic enrollment by itself does not universally create an employer match.

Automatic Enrollment and the 2026 Contribution Limit

Automatic contributions are employee elective deferrals.

They count toward the same annual limit as employee contributions made through an affirmative election.

For 2026, the ordinary employee elective-deferral limit for most 401(k) plans is:

$24,500.^[7]

Automatic enrollment does not create a separate additional allowance.

Example: Automatic Contributions Plus a Later Election

Suppose an employee has already contributed:

$4,000

through automatic payroll deductions.

The employee later increases the election and contributes another:

$20,500

during 2026.

Total employee elective deferrals:

$24,500

The employee has reached the ordinary 2026 limit before considering any eligible catch-up contribution.^[7]

The first $4,000 does not disappear from the annual calculation merely because it was automatically contributed.

Traditional or Roth Automatic Contributions?

Whether automatic contributions are made as traditional pre-tax or designated Roth deferrals depends on the plan's design and election rules.

Automatic enrollment itself describes how the contribution election is established, not necessarily its tax character.

An employee should check:

• whether the plan offers Roth 401(k) contributions
• what default tax treatment the plan uses
• how to change the election

A Roth election changes tax treatment but does not create a separate employee deferral limit.

What Happens If the Employee Makes No Investment Election?

Automatic enrollment creates a second default question:

Where is the money invested?

Section 414A requires contributions for which the employee makes no investment election to be invested in accordance with Department of Labor qualified-default-investment rules.^[2]

A plan fiduciary can use a Qualified Default Investment Alternative, or QDIA, when the applicable conditions are satisfied.^[8][9]

What Is a QDIA?

A QDIA is a default investment option used when the participant does not provide investment direction.^[9]

Common QDIA structures can include:

• target-date or lifecycle funds
• balanced funds
• professionally managed account structures

under the applicable Department of Labor regulations.^[8][9]

A QDIA is not guaranteed against investment loss.

The underlying investments can rise or fall in value.

Target-Date Funds as Defaults

The Department of Labor notes that many plans use target-date funds as default investments.^[9]

A target-date fund generally changes its asset allocation over time based on an anticipated retirement date.

For example, a fund designed for a younger participant may hold a larger allocation to equities than a fund near its target year.

The plan's choice of a target-date fund does not mean the fund is necessarily appropriate for every participant's complete financial situation.

Employees retain responsibility for reviewing available investments and making their own choices when they wish to do so.

Automatic Enrollment Notices

Employees covered by EACA or QACA arrangements generally receive notices explaining the automatic-contribution feature.^[5][6]

IRS guidance states that eligible employees generally must receive notice:

30 to 90 days before each plan year

for applicable EACA and QACA arrangements.^[6]

For a newly hired employee with immediate plan eligibility, the notice can generally be furnished on the date of hire.^[6]

What the Notice Helps Explain

An automatic-enrollment notice can provide information about:

• the default contribution percentage
• the employee's right to opt out
• the right to choose another percentage
• default investment treatment
• withdrawal rights under applicable arrangements
• how to make an election

An employee who sees an unexpected payroll deduction should review the plan's automatic-enrollment notice before assuming an error occurred.

Can an Employee Opt Back In After Opting Out?

Generally, an employee who is eligible for the 401(k) can later make an affirmative contribution election under the plan's procedures.

Opting out of automatic enrollment is not generally the same as permanently waiving participation.

The plan can establish election windows and payroll-processing procedures.

Employees should verify how quickly a new election becomes effective.

Can an Opt-Out Election Expire?

Plan terms can matter.

Some automatic arrangements can periodically re-enroll eligible employees who previously elected zero, while others respect an affirmative opt-out until the participant changes it.

The employee should not assume that a zero election will necessarily remain unchanged forever.

The plan's notice and election system are the source of truth.

What Is Re-Enrollment?

Some plans periodically apply automatic enrollment to eligible employees who are not currently contributing.

This can be referred to as re-enrollment.

Re-enrollment can also involve default-investment treatment for participants who have not made affirmative investment elections.

SECURE 2.0's detailed coverage rules and the plan's design determine which employees are subject to automatic enrollment.

Automatic Enrollment and Existing Employees

The treatment of employees who became eligible before a plan first becomes subject to Section 414A has been an important regulatory issue.

The 2025 proposed regulations generally would require all employees who are eligible to make elective contributions under a plan subject to Section 414A to be covered by the EACA, with transition rules for earlier plan years.^[2]

Because those regulations were proposed rather than final at the time of this article's review, detailed administration should be checked against current plan communications and later Treasury guidance.

Automatic Enrollment and Employer Matching

Assume a plan provides:

> 50% match on the first 6% of compensation contributed.

If an employee is automatically enrolled at:

3%

the match produced under that simplified formula would be based on a 3% employee deferral, not the plan's 6% match ceiling.

The employee would need to understand the match formula separately from the automatic-enrollment default.

The default contribution percentage and the percentage needed for a maximum employer match can be different.

Example: Default Rate Below the Maximum-Match Threshold

Assume:

• compensation: $100,000
• automatic enrollment rate: 3%
• employee contribution: $3,000
• employer match: 50% of first 6%

Employer match at the default rate:

$1,500

If the employee instead contributed 6%:

• employee contribution: $6,000
• employer match: $3,000

This is not a recommendation to increase contributions.

It illustrates why an employee should compare the automatic default rate with the actual employer-match formula.

Automatic Enrollment vs. Safe Harbor 401(k)

Automatic enrollment and safe harbor are separate concepts.

A traditional safe harbor 401(k):

• may or may not use automatic enrollment

A QACA safe harbor:

• must use automatic enrollment

A plan subject to the SECURE 2.0 Section 414A mandate:

• must satisfy the applicable automatic-enrollment rules unless an exception applies

These categories can overlap.

The plan's legal structure matters more than the marketing label.

Why Default Rates Should Not Be Treated as Advice

A plan's default percentage is an administrative setting.

It is not a personalized assessment of:

• retirement income needs
• debt
• emergency savings
• household income
• tax rates
• pension benefits
• Social Security
• investment risk tolerance

An employee may decide to contribute:

• less than the default
• exactly the default
• more than the default
• zero

subject to the plan and law.

The existence of a default does not establish the ideal amount.

Common Automatic-Enrollment Mistakes

Assuming the deduction cannot be changed

Employees generally can opt out or select another rate.

Ignoring the employer-match formula

The automatic rate can be below or above the percentage relevant to the maximum employer match.

Confusing automatic escalation with the annual IRS limit

A percentage increase still remains subject to the applicable annual dollar limit.

Assuming every plan is subject to the SECURE 2.0 mandate

Several statutory exceptions exist.

Assuming the investment is guaranteed

A QDIA remains an investment and can lose value.

Confusing EACA and QACA

They are different legal structures.

Missing the short withdrawal window

Certain EACA default contributions can have a special 90-day permissible-withdrawal rule.

Assuming the default rate is a financial recommendation

It is a plan setting, not individualized advice.

Worked Example: Auto-Enrolled at 5%

Assume:

• annual compensation: $72,000
• default percentage: 5%

Annual contribution at the default rate:

$3,600

The participant receives the automatic-enrollment notice and decides the rate fits the participant's own plan.

No affirmative change is made.

Payroll contributions continue under the plan's rules.

The example shows how a default can become the participant's ongoing contribution rate even without an affirmative enrollment form.

Worked Example: Opting Out

Assume the same employee decides not to make payroll contributions at this time.

The employee submits the plan's opt-out election before contributions begin.

New automatic deductions are set to:

0%

The employee can generally make a later affirmative election if eligible under the plan.

Automatic enrollment does not permanently remove that choice.

Worked Example: Automatic Escalation

Assume a Section 414A arrangement uses:

• initial default: 4%
• annual increase: 1 percentage point
• target default: 10%

Absent an affirmative employee election, the simplified sequence could become:

4% → 5% → 6% → 7% → 8% → 9% → 10%

If the participant affirmatively elects 7% under the plan's procedures, the treatment of later automatic escalation depends on the plan and applicable automatic-enrollment rules.

Worked Example: EACA Withdrawal

Assume an employee's first automatic contribution occurs on:

July 1

The employee later decides to reverse the default enrollment.

Under an applicable EACA permissible-withdrawal provision, the employee requests the distribution within the allowed 90-day window.

The plan can distribute the eligible default contributions and attributable earnings under the EACA rules.^[1][5]

The employee should still review the tax reporting associated with the distribution.

An Automatic-Enrollment Review Checklist

1. What is the default contribution percentage?

Read the plan notice rather than guessing from the payroll deduction.

2. Will the percentage automatically increase?

Identify the escalation schedule.

3. Can the employee choose a different percentage?

Generally yes, subject to plan procedures.

4. What percentage is needed for the employer's maximum match?

The match formula can differ from the default.

5. Is the contribution traditional or Roth?

Tax treatment is separate from enrollment mechanics.

6. Where will the money be invested?

Review the QDIA and the available alternatives.

7. Does a 90-day permissible withdrawal apply?

This depends on the arrangement.

8. Is the plan subject to the SECURE 2.0 mandate?

Plan establishment date and statutory exceptions matter.

9. What is the annual contribution limit?

For most 401(k) plans, the 2026 ordinary employee elective-deferral limit is $24,500 before applicable catch-up contributions.^[7]

10. Has the employee made an affirmative election?

An affirmative contribution or opt-out election can change how the default rules apply.

Frequently Asked Questions

What does automatic enrollment in a 401(k) mean?

It means the plan generally starts payroll contributions at a default percentage unless the employee opts out or elects another rate.^[1]

Can I opt out of automatic enrollment?

Generally yes. Employees must have an opportunity to elect no contribution or a different contribution amount.^[1][5]

Does SECURE 2.0 require every 401(k) to use automatic enrollment?

No. The requirement generally applies to certain arrangements for plan years beginning after 2024, and statutory exceptions include qualifying pre-enactment arrangements, SIMPLE 401(k)s, governmental plans, church plans, new businesses and certain small businesses.^[2][3]

What is the required SECURE 2.0 default rate?

For plans subject to Section 414A, the initial default is generally at least 3% and no more than 10%.^[2]

Does the percentage increase automatically?

Generally yes under the Section 414A mandate. The default typically increases one percentage point per year after each completed participation year until it reaches at least 10%, with a maximum default of 15%.^[2]

Is automatic enrollment the same as a QACA?

No. A QACA is a specific automatic-enrollment safe harbor with additional employer-contribution and other requirements.

Can automatic contributions be withdrawn?

An applicable EACA can provide a special permissible withdrawal within 90 days of the first automatic contribution.^[1][5]

Does automatic enrollment mean my employer must match?

No. Matching is a separate plan feature. A QACA has required employer-contribution rules, but automatic enrollment alone does not universally require a match.^[2]

Where is my money invested if I do not choose?

The plan can use a qualified default investment alternative. For arrangements subject to Section 414A, contributions without participant investment direction must be invested consistently with applicable DOL default-investment requirements.^[2][8][9]

What is the 401(k) contribution limit for 2026?

The ordinary employee elective-deferral limit for most 401(k) plans is $24,500 for 2026, before applicable catch-up contributions.^[7]

The Bottom Line

Automatic enrollment changes the retirement-plan default.

Instead of requiring an employee to take action before saving begins, the plan starts contributions unless the employee chooses otherwise.

SECURE 2.0 made that structure mandatory for certain newer 401(k) and 403(b) arrangements beginning with plan years after 2024.

For plans subject to the mandate:

• the initial default is generally 3% to 10%
• the percentage generally increases by 1 point per year
• the escalation continues toward at least 10%
• the default cannot exceed 15%
• the employee retains the ability to make an affirmative election
• default investments must satisfy applicable requirements

But automatic enrollment is not a personalized savings plan.

The employee still needs to understand:

• the employer match
• contribution limits
• traditional vs. Roth treatment
• investment choices
• escalation rules
• opt-out procedures

The useful question is therefore not simply:

“What percentage did my employer choose?”

It is:

“What choices do I have, and how does the default fit with the rest of the plan?”

Sources & References

1. IRS: Retirement topics — Automatic enrollment
2. IRS/Treasury: Proposed regulations — Automatic Enrollment Requirements Under Section 414A
3. IRS Notice 2024-2: SECURE 2.0 Act guidance
4. IRS Publication 560: Retirement Plans for Small Business
5. IRS: FAQs — Automatic contribution arrangements
6. IRS: Retirement topics — Notices
7. IRS: 2026 401(k) and IRA contribution limits
8. U.S. Department of Labor: Automatic Enrollment 401(k) Plans for Small Businesses
9. U.S. Department of Labor: Target Date Retirement Funds — Tips for ERISA Plan Fiduciaries

Educational Disclaimer

ROIStreet publishes educational content intended to help readers understand workplace retirement-plan enrollment and contribution rules. Nothing in this article is personalized investment, tax, legal, employment or financial advice, or a recommendation to contribute, opt out or select a particular contribution rate or investment. Plan terms, employer size, plan establishment date, tax treatment and individual circumstances can materially change the result.

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We strive to explain before we evaluate, present evidence before opinions, discuss risks alongside potential benefits, distinguish facts from analysis, and correct material errors transparently.

Our purpose is to help readers better understand investing—not to tell them what to do.