By Director and Practice Integration Advisor Thomas Bodin, CFA®, CFP®
If you are thinking about implementing a 401(k) plan in your practice or have already established one after Dec. 29, 2022, the SECURE 2.0 Act has two new provisions you need to be aware of: auto-enrollment and auto-escalation.
For practices with more than 10 employees, these features are now required. The concept, rooted in behavioral economics, is designed to nudge employees into saving for retirement by automatically enrolling them in the plan and gradually increasing their contributions each year. While the intent is positive, these rules can create new administrative responsibilities for practice owners—and how they are structured matters.
Based on an individual’s goals, we typically guide owners toward one of two approaches:
Aligning with Staff Retirement Goals
If supporting your staff’s long-term retirement savings is a priority, auto-enrollment can be a powerful tool. The SECURE Act 2.0 requires a starting contribution of at least 3% and a maximum of 10%. It mandates a minimum annual increase of 1% until it reaches at least 10% to15%.
For many non-clinical staff, 3% is affordable enough to avoid high opt-out rates, while the gradual 1% increases allow savings to grow without putting too much pressure on take-home pay. In practice, this structure helps employees build disciplined savings habits with minimal disruption.
This option works well for owners who view their retirement plan not only as a benefit but also as part of their staff retention and overall practice culture.
Simplifying Administration
For some practice owners, the primary concern is limiting the ongoing administrative burden. In these cases, we often recommend a more streamlined approach: Set both the auto-enrollment and auto-escalation at 10% from the start.
This satisfies the requirement immediately and minimizes the need for annual adjustments. Employees who are uncomfortable with the contribution amount have the ability to opt out of the auto-enrollment provision and set their own deferral rates. If the employee does not make a change to their auto-enrollment contribution, they have the ability to withdraw contributions within the first 90 days, depending on plan provisions and without penalty.
While less focused on encouraging savings behavior, this approach can be ideal if your goal is to “check the compliance box” while keeping administration simple.
Key Exemptions Not to Overlook
Many practice owners don’t realize that the auto-enrollment and auto-escalation rules only apply if you have more than 10 employees. If your practice normally employs 10 or fewer (measured as being on payroll for at least half of your business days in a year), you are exempt. This exclusion can make a significant difference in plan design and administration, but it is often not flagged by third-party administrators (TPAs). Keep in mind that if your practice grows beyond 10 employees, you typically need to implement the rules within a year—and once added, they cannot be reversed. New businesses that have operated for less than three years are also exempt from these provisions when the plan is introduced. Upon the third anniversary of the employer’s existence, they are typically subjected to auto-enrollment and auto-escalation unless a separate exemption is in place, likely the small business (10 employee rule) exemption.
Bottom line: The right approach depends on your goals. Do you want to encourage staff savings and retention, or is your priority to minimize complexity and compliance risk? Either way, it’s important to design your 401(k) thoughtfully from the start.
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Sources:
https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-automatic-enrollment-requirement-for-401k-and-403b-plans#:~:text=WASHINGTON%20%E2%80%94%20The%20Department%20of%20the,faith%20interpretation%20of%20the%20statute.
https://www.lordabbett.com/en-us/financial-advisor/insights/retirement-planning/key-information-on-mandatory-auto-enrollment-for-new-401-k--and-.html#:~:text=Several%20exceptions%20apply%20including%20existing,after%20December%2031%2C%202024.%E2%80%9
About the author
Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension, and retirement planning. He leverages the practical application of his talents into wealth-generating and wealth-preservation strategies tailored to his clients’ individual needs and goals.