Can I Opt Out of 401(k) Automatic Enrollment? 

Being automatically enrolled in your employer’s retirement plan might generate mixed feelings. Perhaps you weren’t planning to contribute as much as the minimum-required percentage of your paycheck, you don’t want automatic increases each year, or you simply oppose it on principle. In any case, you might consider opting out of the plan rather than participating. 

You have several options for saving for retirement outside of your employer-sponsored 401(k) or 403(b) plan, which you may already be utilizing. Before choosing to opt out, though, it may be worth reviewing the benefits of staying in the plan after automatic enrollment. 

Understanding automatic enrollment 

Approximately two-thirds of 401(k) plans have an automatic enrollment feature that starts deducting money from employees’ paychecks when they become eligible, directing it into their employer-sponsored retirement savings accounts.¹ Prior to 2025, this feature was optional for plans, not a requirement. 

Beginning in 2025, many 401(k) and 403(b) retirement savings plans must comply with the SECURE 2.0 Act and automatically enroll eligible employees with an initial contribution of 3% to 10% of their paycheck followed by a 1% increase each year, unless 10% is selected as the initial rate. This was likely prompted by concerns that Americans won’t have enough money to last throughout retirement, since only 54% of households had savings in retirement accounts at the end of 2022.²

While the Act’s provisions are intended to make it easier for more employees to save consistently over a longer period, helping them build a secure financial future, one study found that automatic enrollment increased savings rates by only 0.6%.³ Furthermore, the National Bureau of Economic Research found that early withdrawals from these employer-sponsored plans, often due to job changes, generally negated the positive impact on retirement savings. It remains important for everyone to be mindful of their own savings strategy and develop their own financial plan, rather than relying on automatic enrollment provisions.  

Benefitting from different retirement accounts 

The advantages of an employer-sponsored retirement plan typically include tax benefits and employer matching, both of which are crucial for long-term savings. These plans also offer an opportunity for investment diversification, especially if you also have stock, real estate, or business holdings. 

Whether or not you stay in your 401(k) or 403(b) after automatic enrollment, you might also choose to participate in these investment vehicles: 

• Individual Retirement Accounts (IRAs): You can still contribute to an IRA if you are participating in an employer or business plan. The two main types of IRAs, traditional and Roth, have separate tax implications, income and contribution limits, and withdrawal rules. A traditional IRA may have limited tax deductions if you are also participating in a defined contribution plan, while a Roth IRA might have limited contributions based on your income level.  

• Annuities: In some circumstances, an annuity can be a good addition to your other retirement savings accounts. An annuity is an insurance company offering that is a financial instrument that can provide a guaranteed income stream for as long as you’re alive. It can facilitate income protection and a cushion against market volatility and longevity risk.  

• Health Savings Accounts (HSAs): Health expenses can cut into a big chunk of savings in retirement. If you participate in a high deductible health plan (HDHP) through your employer, you may be able to contribute to an HSA. Like defined contribution plans, contributions are not taxed, your funds grow tax-free, and you can use the funds for qualified medical expenses tax-free. This is often referred to as the triple tax benefit. 

Making informed decisions 

Having a full picture of your financial situation — by connecting the dots of your financial life — can help you determine whether participating in your employer-sponsored retirement plan is right for you, and what other savings vehicles might fit in your plan. At Mercer Advisors, we offer our clients a comprehensive wealth management solution that integrates financial planning, investment management, tax, estate, insurance, and more. Our full range of retirement services are tailored to address your specific situation and help you achieve your retirement goals. 

If you’re not a Mercer Advisors client and want to know more about retirement savings options and how to maximize available opportunities for long-term financial security, let’s talk. 

¹ “401(k) auto-enrollment features don’t help savings as much as expected, study finds.” CNBC, 28 August 2024. 

² “Ownership of Retirement Accounts in 2022: Amounts in Defined Contribution Plans and Individual Retirement Accounts.” Congressional Research Service, 29 July 2024. 

³ “Smaller than We Thought? The Effect of Automatic Savings Policies.” National Bureau of Economic Research, November 2024.