The Secure Act 2.0 is top of mind for everyone as they prepare for the changes it brings to retirement savings in the coming years. The internet is brimming with endless articles about provisions and how they’ll impact individual plans. Sifting through this deluge of information can feel overwhelming.
In this blog, we’ll focus specifically on how this act paves the way for auto-enrollment and auto-escalation and help explain the bottom line.
This provision is one of the simpler provisions. Starting in 2025, businesses that meet certain criteria will be required to auto-enroll their employees in a retirement plan. All employees will be auto-enrolled at a minimum of 3% and a maximum of 10%, with a 1 percentage point escalation each year (capped at 15%).
This is overall good news for employees because it removes doubt and indecision and makes saving automatic. According to one Vanguard study, employers that offered auto-enrollment had a whopping 91% of employees participating and that number stayed level for years, while those with voluntary enrollment had a participation rate of just 28%.
The downside is, this mandatory 3% will not be enough for most Americans to prepare well for retirement. Employees will need to increase their contributions significantly and take advantage of their employer's full match (if offered) to stay on track to retire. For more information on how much is really “enough” for retirement savings, check out this SmartPath video.