5 Upcoming Changes to 401(k) Plans That’ll Help Almost Everyone Save More

Automating savings can help you reach financial goals because you don't have to constantly remember to transfer money into investment accounts.

Recent federal legislation — in the form of the 2022 SECURE 2.0 Act — will make this process easier. Many provisions tied to the act are going into effect this year.

Here are some ways — including automation and other new features — that 401(k) plans are changing for the better, making it easier to prepare for retirement.

1. Automatic enrollment

The SECURE 2.0 Act requires employers with more than 10 employees to automatically enroll eligible workers into the company's retirement savings plan. The rule applies to all plans created after late 2022.

Once automatically enrolled, employers can set up an employee's automated retirement contributions at a default rate of at least 3% of the worker's salary.

Automated enrollment makes it easier for employees to start building retirement savings. It's often easier to stick with a retirement savings contribution that's already in place than it is to figure out the eligibility requirements, fill out the paperwork, and start making contributions.

Employees who don't want to participate can elect not to make contributions. They also can contribute a different percentage of their pay.

2. Automatic escalation

Increasing worker contributions over time can also help savers reach retirement goals faster. That is why the SECURE 2.0 Act requires employers to set up automatic increases to employees' retirement contributions.

Employers must automatically increase contributions by 1% per year until reaching a total of at least 10%, but no more than 15%. However, workers have the right to adjust the savings rate to whatever works best for them.

Many financial experts recommend savers set aside 15% of their income for retirement each year. While this benchmark is often difficult to meet, the gradual and automated increase might make reaching this goal more palatable.

3. Automatic portability

When workers leave a job, they often cash out the 401(k) account they had with their previous employer. This can result in having to pay both taxes and penalties.

While it is possible to avoid taxes and penalties by rolling this money into an IRA or a new employer's 401(k) plan, many people fail to do so. The SECURE 2.0 Act encourages employers to make this process easier through automatic portability.

Experts say employers are just beginning to adopt automatic portability. But eventually, it should help millions of savers keep their nest eggs intact.

4. More coverage for part-time workers

In the past, it has been difficult for part-time workers to access 401(k) plans, as many companies deemed them ineligible.

However, the SECURE 2.0 Act now makes part-time workers eligible for 401(k) plans if they worked at least 500 to 1,000 hours per year for two straight years with the same company.

Part-time workers who put in more than 1,000 hours at their job are eligible to participate in a company's 401(k) after one year.

5. Enhanced ability to find lost retirement accounts

When the SECURE 2.0 Act passed, it included a provision instructing the U.S. Department of Labor to create a "lost and found" database so workers could find "lost" retirement plans and benefits they are owed.

The Department of Labor has created a webpage that you can use to access the database and find missing retirement benefits.

Bottom line

Saving for retirement is a significant financial undertaking. It often takes decades of consistent investment contributions to amass enough funds for a comfortable retirement.

Automatic enrollment, escalation, and portability should help people save more, but it's still important to take an active role in your own retirement planning.

Setting retirement savings goals and monitoring your progress remains critical. Whether you are saving for retirement now or are currently retired, learning how to stretch your retirement dollars further can help you get the most enjoyment out of your golden years.