Is a 401(k) Mandatory? State Mandates and Auto-Enrollment

No, a 401k is not mandatory. No federal law requires a private employer to offer a 401k plan, and no federal law requires an employee to join one when it is offered. The Department of Labor states plainly that the Employee Retirement Income Security Act “does not require any employer to establish a retirement plan”; it only sets minimum standards for the plans that exist.¹ That said, the picture has gotten more complicated. Roughly 17 states now require employers without a private plan to enroll workers in a state-run IRA, and most new 401k plans must automatically enroll participants who don’t opt out.

Federal Law Does Not Require Employers to Offer a 401k

ERISA is the main federal law governing employer-sponsored retirement plans. It sets fiduciary duties for the people who manage plan money and gives workers the right to sue when those duties are breached.² It also requires plan administrators to file annual reports with the IRS and the Department of Labor and to give participants detailed information about how the plan works.³

None of that forces any private employer to start a plan. ERISA treats a 401k as a voluntary benefit. If an employer offers one, it has to follow the rules. Choosing not to offer one at all is legal under federal law.¹ That is why many small businesses operate without any formal retirement option.

State Mandates Are the Closest Thing to a Requirement

While Washington has left retirement plans voluntary, states have not. As of early 2026, roughly 17 states have enacted auto-IRA programs that require certain private employers to either offer their own retirement plan or enroll workers in a state-run individual retirement account. These mandates generally target employers that do not already sponsor a 401k, SEP IRA, SIMPLE IRA, or other qualifying plan.

Each state writes its own rules for which employers are covered, and the trigger is usually the size of the workforce. Thresholds range from as few as one employee to as many as 25, depending on the state. Under these programs, the employer runs payroll deductions into a state-managed IRA but does not contribute any money of its own. Workers can opt out at any time, and the fees inside the state accounts are generally low.

Penalties for noncompliance vary. They commonly run from about $100 to $750 per eligible employee, with the amount escalating the longer a business stays out of compliance. Employers with workers in more than one state should check the requirements in each. Businesses that already offer a qualifying private retirement plan are typically exempt from registering with the state program.

New 401k Plans Must Automatically Enroll You

If your employer does offer a 401k, you may find yourself signed up without doing anything. Under the SECURE 2.0 Act, most new 401k and 403(b) plans established after December 29, 2022, must include automatic enrollment starting with plan years beginning after December 31, 2024.⁴ Under automatic enrollment, a percentage of each eligible worker’s pay goes into the plan unless the worker takes action to opt out or pick a different amount.

The initial default contribution rate has to be at least 3 percent but no more than 10 percent of pay. That rate then increases by one percentage point each year until it reaches at least 10 percent, with a ceiling of 15 percent.⁴ A plan that starts you at 3 percent would move you to 4 percent the next year, then 5 percent, and so on until it hits the plan’s chosen maximum.

You keep the right to opt out entirely or to change your contribution level. The plan administrator has to give you a written notice explaining the automatic enrollment process, your right to stop or adjust contributions, and how the money will be invested if you don’t make an investment choice. That notice is generally required at least 30 days but no more than 90 days before each plan year, and far enough ahead for newly eligible employees to decide before the first paycheck deduction.⁴

Plans That Are Exempt From Automatic Enrollment

The auto-enrollment mandate does not reach every 401k. Several categories are carved out:

Plans established before December 29, 2022 are grandfathered and not required to add automatic enrollment.
Employers that normally employ 10 or fewer workers are exempt.
Businesses in operation for fewer than three years, counting any predecessor employer, are exempt.
SIMPLE 401k plans are excluded.
Governmental plans and church plans are both exempt.
Multiemployer plans covering workers from multiple employers under a collective bargaining agreement are excluded.

These exceptions mean the automatic enrollment requirement mostly affects new 401k plans set up by mid-size and larger private employers after 2022.⁴ If your employer already had a 401k before the law passed, it can add automatic enrollment but is not required to.

Who Has to Be Allowed Into the Plan

An employer that offers a 401k is not free to make you wait indefinitely. Under the Internal Revenue Code, a plan cannot require an employee to be older than 21 or to have completed more than one year of service before becoming eligible.⁵ A year of service generally means a 12-month period in which the employee works at least 1,000 hours. Once you clear both the age and service thresholds, the plan has to let you in at the next available enrollment date.

There is one narrow exception. A plan that provides 100 percent immediate vesting on all employer contributions can require up to two years of service before allowing participation.⁵ Most plans skip this option because it forces full and immediate vesting, which eliminates the employer’s ability to use a gradual vesting schedule.

Long-Term Part-Time Workers

The 1,000-hour threshold historically shut out many part-time employees. SECURE 2.0 changed that. Plans must now allow long-term, part-time workers to make elective deferrals if they complete at least 500 hours of service in two consecutive 12-month periods and are at least 21 years old. The original SECURE Act of 2019 set this at three consecutive years, and SECURE 2.0 shortened it to two. The rule keeps employers from permanently locking out part-time staff who work consistently year after year.

Groups an Employer Can Leave Out

Federal regulations let employers exclude certain categories of workers from a 401k without running afoul of nondiscrimination rules:

Workers covered by a collective bargaining agreement can be excluded from a plan that covers only non-union employees, provided retirement benefits were the subject of good-faith bargaining.⁶
Nonresident aliens who earn no U.S.-source income from the employer may be excluded.⁶
Employees under 21 or with less than one year of service can be excluded if the plan applies those conditions uniformly.

Employers cannot cherry-pick individuals to keep out. Any exclusion has to apply uniformly to an entire category of workers.

1
U.S. Department of Labor. FAQs About Retirement Plans and ERISA
2
Cornell Law School / Legal Information Institute (LII). ERISA
3
Internal Revenue Service. Retirement Plan Reporting and Disclosure
4
Federal Register. Automatic Enrollment Requirements Under Section 414A
5
Office of the Law Revision Counsel. 26 USC 410 – Minimum Participation Standards
6
eCFR. 26 CFR 1.410(b)-6 – Excludable Employees