Auto Enrollment for Emergency Expenses

Beginning with the 2025 tax year, the SECURE Act 2.0 will require employers that establish new 401(k) or 403(b) plans to auto-enroll employees in the savings plans (employers with existing retirement plans can take advantage of grandfathering provisions if they don’t wish to automatically enroll employees and certain small employers are exempt). The minimum auto-enrollment contribution rate will range from 3% to 10%. Each year, the minimum contribution rate will then increase by 1% until the rate reaches 15%. Many experts debate whether these new provisions will be effective in helping lower income Americans save for emergencies on top of retirement. Beginning in 2024, the SECURE Act 2.0 also allows plan participants to take emergency distributions from their retirement savings accounts without penalty (currently, a 10 percent penalty plus ordinary income tax applies if an early distribution does not qualify for an exception).

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether newly enacted auto-enrollment provisions will be effective in helping low-income households save for retirement.

Below is a summary of the debate that ensued between the two professors.