February 25, 2026
Secure Act 2.0 requires employers to start automatically enrolling employees for tax-saving 401(k) elective deferral contributions (also called salary reduction contributions) for all new plans. Exceptions apply for plans established prior to December 29, 2022, new businesses in operation for less than 3 years, and small businesses with10 or fewer employees.
The end result of these changes: Companies with auto-enrollment features will have more employees participating. Larger allowable salary reduction contributions can likely be made for higher-paid employees, because lower-paid workers will be contributing more.
That is because the Internal Revenue Code prohibits plans from discriminating in favor of highly compensated employees with respect to contributions or benefits.
Plans are tested for discrimination using a mathematical formula that measures contributions for highly compensated employees with those of other employees.
Rule Changes
The tax law includes two other important auto-enrollment rules:
1. A Window Period to Recover Unintended Contributions. The first change allows 401(k) plans to give employees a window period of up to 90 days after the auto-enrollment date to opt out of the program and get their money back. Of course, the amounts employees get back will be added back to their taxable wages.
2. A Safe-Harbor Auto-Enrollment Contribution Formula. This encourages employers to install so-called safe-harbor automatic enrollment arrangements. These have escalating contribution percentages. For example, a plan with a safe-harbor feature could automatically withhold at least three percent of an employee’s salary for the first year, increasing to at least four percent for the second year, going up again to at least five percent for the third year, and then increasing to at least six percent for later years. (The percentage cannot exceed 10% for any year.)
The employer is required to match a portion of each employee’s auto‑enrollment contributions (according to another formula), and those employer matching contributions must be 100% vested after two years.
An Example of the Rules in Action
Let’s say your company’s 401(k) plan installs an auto‑enrollment arrangement with escalating safe-harbor contribution percentages.
An employee named Ben doesn’t opt out of the program. Let’s assume:
The auto‑enrollment feature puts Ben’s retirement savings on cruise control and allows him to put away $10,120 over four years, not including investment earnings. It also lowers his income tax bills.
Meanwhile, it makes it easy for your company to satisfy the nondiscrimination and top heavy rules that can otherwise make a 401(k) plan troublesome to operate.
Key Point: A 401(k) plan that includes a safe-harbor auto-enrollment arrangement is deemed to accomplish the following:
There are many advantages for employers in the new 401(k) plan auto-enrollment rules, which can be applied to new hires or all qualified employees.
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