Making regular contributions to a retirement account is one of the best ways to improve your future financial security. But there are some barriers that make it hard for workers, especially lower-wage earners, to build their nest eggs.

One obvious problem is that not all employers offer access to workplace retirement accounts. This forces their employees to save on their own in an IRA, if they do at all. But even many of those who have access to a 401(k) or another workplace retirement plan don’t always participate.

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A new rule change taking effect next year aims to fix this second issue. But it won’t affect all workers in 2025.

The law will now require employers to auto-enroll employees

The SECURE 2.0 Act, passed at the end of 2022, made several significant changes to retirement accounts, though they haven’t all gone into effect yet. One change set to make its debut in 2025 is mandatory auto-enrollment in 401(k)s and other workplace retirement plans for eligible participants.

Under current law, you typically have to opt into the plan. If you don’t, your employer won’t withhold any money from your paychecks. This extra hoop leaves can cause workers to go years without contributing anything for retirement.

Studies have shown that auto-enrollment programs can virtually eliminate the participation gap in workplace retirement plans among minorities and lower-wage employees. The total savings these workers wind up with depends on several factors, including what percentage of their paychecks they defer, but it’s definitely an improvement over not contributing at all.

Those who qualify for a 401(k) match from their employers will benefit even more. If you earn $50,000 and your company gives you a dollar-for-dollar match on up to 3% of your income, you’ll contribute $1,500 and your employer will kick in another $1,500, so you’ll add $3,000 to your 401(k) that year. And that doesn’t factor in what that money could grow to after it’s been invested for a while.

Who it applies to

The rule change doesn’t take effect until Jan. 1, 2025, and even then, it doesn’t apply to all companies. Obviously, if your employer doesn’t offer any sort of retirement plan to its employees, you will still have to save for retirement elsewhere. Also, all existing 401(k) and 403(b) plans are grandfathered in and do not have to follow the new auto-enrollment rules.

In addition, the following employers don’t have to auto-enroll employees in their workplace retirement plans if they don’t want to:

• Small businesses with 10 or fewer employees
• New businesses that have been in business for less than three years
• Churches
• Governmental organizations

Given that all existing plans are grandfathered in and new companies aren’t required to offer auto-enrollment until they’ve been in business three years, it’s likely that many workplace retirement plans won’t have mandatory auto-enrollment next year. However, we can expect that this will become more common as time goes on.

How auto-enrollment works

The law requires that all workplace retirement plans subject to this new rule auto-enroll all those eligible to participate in the plan at a rate of at least 3% of their salary but not more than 10%. Every year, it will automatically increase the contribution amount by 1% until it reaches at least 10%, but not more than 15%.

You will have the option to opt out if you prefer not to have money withheld from your paychecks or if you prefer to contribute a lower amount. But you will have to make this selection. Talk with your company’s HR department if you have any questions about whether the plan will use auto-enrollment next year and how to opt out if you’d like to.

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