Do you automatically get a retirement plan? Understanding employer and state rules

According to AARP, nearly half of American private sector workers lack access to a retirement plan through their employer. So, when it comes to the question, "Do you automatically get a retirement plan?", the answer is a crucial nuance that depends heavily on your employer and state laws.

Quick Summary

No, you do not automatically receive a retirement plan simply by being employed; it depends on your employer's offerings and applicable laws, though many newer plans use auto-enrollment to help you start saving right away.

Key Points

• Automatic enrollment isn't universal: Whether you are automatically enrolled in a retirement plan depends on your specific employer and plan, not a federal mandate for all companies.

• You must be proactive: Even with auto-enrollment, you must manage your plan, including choosing investments, adjusting contribution rates, and deciding whether to opt out.

• State programs are growing: Several states have implemented "Auto-IRA" programs, requiring many employers to facilitate retirement savings for their workers.

• Self-employed have options: For those who don't have an employer plan, personal IRAs (Traditional or Roth) are excellent tools for saving for retirement.

• Portability is key: When changing jobs, you have options to roll over your retirement savings to a new plan or an IRA, allowing your savings to grow uninterrupted.

• Start early for compounding benefits: The sooner you start saving, the more time your investments have to grow due to the power of compounding interest.

Automatic Enrollment is Not Universal

While automatic enrollment is a feature in many retirement plans, it is not a given. Employers must offer a plan like a 401(k) and choose to include this feature. Even with auto-enrollment, you can opt-out or change contributions. It is a company choice to help employees save, not a universal right.

The SECURE Act 2.0 and Its Impact

The SECURE Act 2.0 has increased automatic enrollment, especially for new 401(k) and 403(b) plans in businesses with 10+ employees starting in 2025. While significant, this doesn't affect all employers or older plans.

Retirement Plans for Employees vs. Self-Employed

Your plan options depend on your employment status. Employees rely on company offerings, while the self-employed must set up their own. Common options include:

Employer-Sponsored Plans

• 401(k) Plans: Popular plans where employees contribute wages, often with employer matching.
• Pensions: Less common now; these defined benefit plans provide a set amount at retirement, with the employer managing risk.
• SIMPLE IRA: For small businesses, allowing employee and required employer contributions.
• SEP IRA: For small business owners and the self-employed; employer (or individual) contributes to an IRA for employees.

Individual Retirement Arrangements (IRAs)

• Traditional IRA: Open to anyone with earned income; contributions may be tax-deductible, with tax-deferred growth.
• Roth IRA: Funded with after-tax money; contributions are not deductible, but qualified withdrawals in retirement are tax-free.

State-Facilitated Auto-IRAs

A number of states require employers without their own plan to enroll workers in state-sponsored Auto-IRA programs. These use payroll deductions and are typically Roth or Traditional IRAs. AARP has championed these initiatives.

Comparing Key Retirement Plan Types

This table compares common retirement plans:

Feature	Employer-Sponsored 401(k)	Individual Retirement Arrangement (IRA)	State-Facilitated Auto-IRA
Provider	Your employer.	Financial institutions (banks, brokerages, etc.).	A program established and overseen by your state.
Automatic Enrollment	Possible, depending on your employer's plan rules and applicable law.	No, requires personal initiative to open and fund.	Automatic, if your employer doesn't offer their own plan in a participating state.
Contribution Source	Primarily employee contributions via payroll deduction; often includes employer match.	Individual contributions directly to the account.	Employee contributions via payroll deduction.
Contribution Limits	Generally higher than IRAs ($23,500 in 2025), plus catch-up contributions for older workers.	Lower limits ($7,000 in 2025), with eligibility phased out based on income for Roth IRAs.	Subject to IRA contribution limits, not 401(k) limits.
Portability	Highly portable; can be rolled over to a new plan or IRA.	Always belongs to the individual; easily portable.	Always belongs to the individual; easily portable.

Taking Control of Your Retirement Savings

Even with automatic enrollment, be proactive. Review investment choices and contribution rates. If no employer plan is offered or you are self-employed, setting up a Traditional or Roth IRA provides tax advantages and investment options. Saving is an active process; understanding your options and contributing consistently is vital. The Department of Labor website offers extensive information on retirement plans.

How to Proceed When You Change Jobs

When changing jobs, you have choices for your old retirement plan balance:

1. Leave funds in the old plan: Possible for balances above a certain amount, but you can't contribute and must track multiple accounts.
2. Roll over to your new employer's plan: Consolidates savings, if your new employer allows rollovers.
3. Roll over to an IRA: Offers potentially broader investment choices than an employer plan.
4. Cash out: Not recommended due to taxes and penalties, which significantly reduce savings.

Auto-portability services are emerging for small balances (up to $7,000), automatically rolling them to your new employer's plan unless you opt out.

Setting up a Retirement Plan for Yourself

If you lack an employer plan, establishing your own is crucial. Steps include:

1. Open an account: Open a Traditional or Roth IRA with a financial institution.
2. Fund the account: Contribute up to the annual limit, potentially setting up automatic transfers.
3. Choose your investments: Select from options like mutual funds, ETFs, stocks, or bonds.
4. Review regularly: Monitor investments and progress, adjusting strategy as you approach retirement.

Frequently Asked Questions

Is an employer legally required to provide a retirement plan?

No, federal law does not require all employers to offer a retirement plan. However, some newer plans and some state laws may require employers to offer or facilitate access to retirement savings.

What is automatic enrollment in a retirement plan?

Automatic enrollment is a plan feature where an employer automatically deducts a specified percentage of an employee's wages and contributes it to a retirement account, unless the employee chooses to opt-out.

Can I opt-out of automatic enrollment?

Yes. Even if your employer automatically enrolls you, you always have the right to opt-out of the plan or change your contribution amount by notifying your plan administrator.

What if my employer doesn't offer a retirement plan?

If your employer does not offer a retirement plan, you can open and contribute to an individual retirement arrangement (IRA), such as a Traditional or Roth IRA, on your own.

What happens to my retirement plan when I change jobs?

When you change jobs, you have several options for your retirement plan, including leaving it with your old employer, rolling it over to a new employer's plan, or rolling it over into an IRA.

What is the difference between a 401(k) and an IRA?

A 401(k) is an employer-sponsored plan, while an IRA is an individual plan you can set up yourself. 401(k)s generally have higher contribution limits, while IRAs offer more investment flexibility.

Are automatic contributions to a 401(k) taxable?

For traditional 401(k)s, automatic contributions are typically pre-tax, meaning they are excluded from your taxable income for that year. Taxes are paid upon withdrawal in retirement. Some plans also offer Roth 401(k)s with after-tax contributions.