Can a Company Automatically Enroll You in a 401(k)?

Yes, a company can automatically enroll you in a 401(k) plan, and for most 401(k) and 403(b) plans created after December 29, 2022, federal law now requires it for plan years beginning after December 31, 2024.¹ Your employer deducts a set percentage of your pay and deposits it into a retirement account unless you specifically choose otherwise.² You keep the right to opt out, change the contribution amount, or, in some cases, get an early deduction refunded.

Why This Is Now the Default

The SECURE 2.0 Act made automatic enrollment mandatory for most newly created 401(k) and 403(b) plans starting with the 2025 plan year.¹ Before that, employers could offer auto-enrollment voluntarily under a framework built on ERISA and the Pension Protection Act of 2006. That framework also lets employers place your contributions into approved default investments without taking on personal liability for the investment results.³

Not every employer is covered. Plans that already existed on December 29, 2022 are grandfathered, so if your company’s 401(k) predates that date, it doesn’t have to add automatic enrollment (though it may). Small businesses with 10 or fewer employees, employers in existence for less than three years, state and local government plans, church plans, and SIMPLE 401(k) plans are also exempt from the mandate.⁴ Any of them can still choose to auto-enroll workers.

What Gets Deducted and Where It Goes

Under the SECURE 2.0 rules, the initial default contribution rate must be at least 3% but no more than 10% of your pay.¹ Most employers start at the low end. Each year you participate, your rate then rises by one percentage point until it reaches somewhere between 10% and 15%, depending on the plan.⁴ You can override the starting rate and the yearly escalation at any point by setting your own percentage.²

Because you haven’t picked investments, the money goes into a Qualified Default Investment Alternative. That’s usually a target-date fund tied to your expected retirement year, though it may also be a professionally managed account, a balanced fund, or, for the first 120 days, a capital preservation product like a stable value fund.⁵⁶ You can change the investments through the plan’s website or by contacting the administrator; the default only applies until you make your own selection.

The Notice You Should Get First

Your employer cannot quietly start deductions. Before automatic enrollment begins, you must receive an Automatic Enrollment Notice telling you the default percentage that will come out of your pay, your right to change that percentage or stop contributions entirely, and which default investment your money will go into.⁷ The notice must arrive at least 30 days, and no more than 90 days, before you become eligible or before the start of each new plan year. If the plan enrolls you immediately at hire, the notice may come on your first day.⁸ An updated notice must go out every year, giving you a fresh chance to review your elections.

How to Opt Out Before Deductions Start

To stop the first deduction from ever happening, submit your election through HR or the plan administrator’s online portal during the notice period, usually the 30-day window after you get the enrollment notice. Most systems process the change electronically. Setting your contribution rate to 0% has the same effect as opting out, and you can do that at any point later on as well. Stopping future contributions, though, doesn’t touch money that has already been withheld. For that, you need the refund process below or a qualifying distribution event.

Getting Back Money That Was Already Deducted

If deductions have already started and you want your money returned, federal regulations give you 90 days from your first automatic contribution to request a full refund of your deferrals plus any earnings on them.⁹ Your plan may set a shorter deadline, but the window has to be at least 30 days. Submit the request to your plan administrator.

Before you file, understand what the refund costs you:

The refunded amount counts as taxable income for the year you receive it. It is not subject to the 10% early withdrawal penalty that normally applies before age 59½.⁹
Any employer matching contributions on the refunded deferrals are forfeited and returned to the plan.⁹
The plan administrator will issue a Form 1099-R for the distribution, which you’ll need when filing your tax return.⁹

If You Miss the 90-Day Window

Once the refund window closes, the money generally stays in the plan until a qualifying event lets you take a distribution. Common qualifying events include reaching age 59½, leaving the employer that sponsors the plan, total and permanent disability, death (for your beneficiaries), and, if the plan allows, a hardship withdrawal for an immediate and heavy financial need. Newer exceptions cover distributions of up to $1,000 per year for personal or family emergencies and up to $22,000 for losses from a federally declared disaster.¹⁰

Distributions before age 59½ are generally taxed as ordinary income. Some exceptions waive the 10% early withdrawal penalty and some don’t, so check which category yours falls into before withdrawing.

If Your Employer Enrolled You Incorrectly

Employers sometimes miss enrolling an eligible worker or apply the wrong deferral percentage. The IRS has a correction framework, and the fix depends on how fast the mistake is caught. If the employer corrects the error within the first three months, no corrective contribution to your account is required, provided correct deferrals begin within that period and you get a written notice within 45 days of the correction. For longer failures, the employer may owe a corrective contribution equal to 25% of the deferrals you missed, as long as they fix it within three plan years and send the required notice. Beyond three plan years, that corrective contribution rises to 50% of your missed deferrals.¹¹

If you think you were skipped, notify your employer in writing. That notification starts a separate clock: correct deferrals must begin by the last day of the month following the month you reported the issue.

1
Office of the Law Revision Counsel. 26 USC 414A – Requirements Related to Automatic Enrollment
2
Internal Revenue Service. FAQs – Auto Enrollment – What Is an Automatic Contribution Arrangement in a Retirement Plan
3
U.S. Department of Labor. Fact Sheet – Default Investment Alternatives Under Participant-Directed Individual Account Plans
4
Federal Register. Automatic Enrollment Requirements Under Section 414A
5
Internal Revenue Service. Retirement Topics – Automatic Enrollment
6
U.S. Department of Labor Employee Benefits Security Administration. Regulation Relating to Qualified Default Investment Alternatives in Participant-Directed Individual Account Plans
7
U.S. Department of Labor. Automatic Enrollment 401(k) Plans for Small Businesses
8
Internal Revenue Service. FAQs Auto Enrollment When Must an Employer Provide Notice of the Retirement Plans Automatic Contribution Arrangement to an Employee
9
eCFR. 26 CFR 1.414(w)-1 – Permissible Withdrawals From Eligible Automatic Contribution Arrangements
10
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
11
Internal Revenue Service. 401(k) Plan Fix-It Guide – Eligible Employees Weren’t Given the Opportunity to Make an Elective Deferral Election