In the waning hours of the 118th US Congress, on December 27th 2022, some of the most consequential and sweeping changes to retirement planning in generations became law. Included in the 2022 Omnibus spending bill, “Secure Act 2.0” will fundamentally alter how Americans approach saving for retirement. Many excellent articles and resources have already been published on the topic, and the stunning breadth of changes is too much for us to cover here, but certain changes to stand out to us.

For Employers: Automatic Enrollment and Escalation (mandatory)

Companies with more than 10 employees looking to begin offering a 401(k) or Profit-Sharing Plan, by far two of the most common plan types, will need to include automatic enrollment of employees. This changes the model from the current “opt-in”, whereby an employee elects to participate in a plan, to an “opt-out” model where an employee elects to not participate.

New plans will also need to include the automatic escalation of employee contributions each year. Under the new rules an employee’s deferral will start at 3% and increase by 1% annually until the total deferral reaches 10%. Employees can again opt-out of this escalation but will need to do so each year.

New plans established after December 29, 2022 will need to come into compliance with these requirements by January 1, 2025. This is not optional – all new plans (exceptions below) will need to comply.

These rules do not apply to existing 401(k) or Profit-Sharing plans, new plans where the employer has fewer than 10 employees, plans established by a company in existence for less than three years (but such companies will need to include these provisions by their fourth year) or other types of retirement plans such as SEPs, SIMPLE, IRAs, etc.