The New EACA Requirement for 401(k) Plans Under SECURE 2.0
Beginning with the 2025 plan year, a major shift is coming for employers offering retirement plans. The SECURE 2.0 Act of 2022 introduced a new rule that requires most newly established 401(k) and 403(b) plans to include an Eligible Automatic Contribution Arrangement (EACA). This provision is designed to help more Americans build retirement savings by making plan participation the default rather than the exception.
What Is an EACA?
An Eligible Automatic Contribution Arrangement (EACA) is a type of automatic enrollment feature that enrolls employees in a retirement plan at a default contribution rate unless they opt out by choosing any other deferral rate (including 0%). The EACA framework also includes specific notice requirements, the option for employees to withdraw contributions up to 90 days after automatic enrollment, and consistent treatment of all eligible employees.
The SECURE 2.0 Auto‑Enrollment Mandate
Under SECURE 2.0, any 401(k) or 403(b) plan established on or after December 29, 2022, must include an EACA starting with the plan’s first year that begins in 2025 or later. Employers who already maintained plans before that date are grandfathered in and do not have to adopt automatic enrollment features.
For new plans, the law requires that:
Default contribution rate: The initial automatic deferral must be at least 3%, but not more than 10%, of an employee’s compensation.
Automatic escalation: Each year after an employee’s first full year of participation, the contribution rate must automatically increase by 1% per year, reaching at least 10% (and up to 15%) unless the employee chooses otherwise.
Withdrawal right: Employees must be allowed to withdraw their automatic contributions within 30 to 90 days of the first deferral if they prefer not to participate. Withdrawn amounts are taxed but not subject to the 10% early‑withdrawal penalty.
Default investment: Contributions must be invested in a qualified default investment alternative (QDIA)—typically a target‑date fund or balanced fund—if the participant does not make an investment choice.
Notice requirement: Employers must provide a written notice before each plan year outlining the employee’s rights, the default contribution rate and investment, and the option to opt out or change the rate.
Exempt Employers and Plans
“By shifting from an opt in to an opt out model, SECURE 2.0 seeks to make saving for retirement the default financial behavior.”
Not every employer must comply with the new auto‑enrollment mandate. The following are exempt:
Small employers that normally have 10 or fewer employees
New businesses that have been in existence for less than three years
Governmental, church, and SIMPLE 401(k) plans
Plans established before December 29, 2022 (“pre‑enactment” plans)
For multiple employer plans (MEPs) or pooled employer plans (PEPs), the exemption applies separately to each participating employer. For example, if one employer joins a MEP after the cutoff date, it must comply even if the MEP itself was created earlier.
Why the Change Matters
The requirement aims to expand retirement coverage and improve long‑term savings outcomes. Studies show that automatic enrollment dramatically raises participation rates, particularly among younger and lower‑income workers who might otherwise defer participation. By shifting from an opt‑in to an opt‑out model, SECURE 2.0 seeks to make saving for retirement the default financial behavior.
Preparing for Compliance
Employers planning to adopt a 401(k) or 403(b) plan should review the new rules now to ensure they meet compliance. Key steps include:
Confirm plan establishment date to determine whether the mandate applies.
Design the EACA with appropriate default rates and escalation schedules.
Coordinate with payroll and recordkeepers to implement automatic deferral and withdrawal features.
Update participant communications to meet the new annual notice obligations.
Review investment options to confirm QDIA compliance.
The EACA requirement under SECURE 2.0 represents a significant regulatory update, but also a valuable opportunity. At Evergreen, we can help you determine if you are exempt from this mandate or need to offer an EACA. Additionally, we can help design an EACA that meets your company’s needs best.