Pension opt-outs and re-enrolment in the United States
Reviewed by Mellow Editorial Team, HR & payroll content team
Pension opt-outs and re-enrolment are concepts rooted in UK auto-enrolment law. The United States has no equivalent federal mandate — employers are not legally required to auto-enrol employees into a pension, and there is no statutory re-enrolment cycle. What the US does have is a voluntary framework under ERISA and the Internal Revenue Code that gives employers significant flexibility to design 401(k) and similar plans, including automatic enrolment features that closely parallel the UK model.
What US law actually requires
No federal law forces a private employer to offer a retirement plan at all. If you do offer a 401(k) or similar defined-contribution plan, the Employee Retirement Income Security Act (ERISA) governs how it must be administered — fiduciary duties, plan documentation, disclosure to participants, and non-discrimination testing. The IRS and Department of Labor jointly oversee compliance.
A small number of states have enacted their own mandates. California, Illinois, Oregon, and several others require employers above a certain size threshold to either offer a qualifying retirement plan or enrol employees in a state-run IRA program (such as CalSavers in California). The specifics vary by state and change as legislation evolves, so check the rules in every state where you have employees.
Automatic enrolment: how it works in US plans
Since the Pension Protection Act of 2006, employers have been permitted — and increasingly encouraged — to use Qualified Automatic Contribution Arrangements (QACAs) and Eligible Automatic Contribution Arrangements (EACAs) within their 401(k) plans. The SECURE 2.0 Act, enacted in late 2022, went further: it requires most newly established 401(k) and 403(b) plans to include automatic enrolment at a contribution rate of at least 3% of compensation, escalating annually up to at least 10%.
Under a QACA, employees are enrolled automatically at the plan's default contribution rate and invested in a default fund (typically a target-date fund designated as a Qualified Default Investment Alternative, or QDIA). Employers must make either a matching contribution or a non-elective contribution that meets statutory minimums to qualify for the safe harbor that exempts the plan from certain non-discrimination tests.
Existing plans in operation before the SECURE 2.0 effective date are generally grandfathered and not subject to the new automatic enrolment mandate, though employers may voluntarily add it.
The opt-out process
Because enrolment is automatic in plans that adopt this design, employees have the right to opt out. The employer's plan document must specify the opt-out window — under an EACA, employees typically have 90 days from the date automatic contributions begin to withdraw those contributions and receive a refund, avoiding the usual early withdrawal tax consequences. After that window closes, normal distribution rules apply.
The opt-out process in practice:
1. Notice to employees. Before automatic contributions begin, you must provide a written notice explaining the default contribution rate, the default investment fund, and the employee's right to opt out or change their election. EACA and QACA notices have specific content requirements under IRS guidance.
2. Employee election. The employee submits an opt-out or contribution-change election through whatever mechanism the plan uses — paper form, online portal, or payroll system interface.
3. Payroll update. Your payroll process must reflect the change prospectively. For an EACA refund request submitted within 90 days, the plan administrator returns contributions (adjusted for earnings or losses) to the employee, and you report the distribution on Form 1099-R.
4. Record-keeping. Keep documentation of every election and its effective date. ERISA's record-keeping rules require plan records to be retained for at least six years.
Re-enrolment
There is no federally mandated re-enrolment cycle in the US. However, plan sponsors that use automatic enrolment commonly conduct a voluntary re-enrolment — sometimes called a "re-default" — typically every one to three years. This involves resetting all employees (including those who previously opted out or reduced their contributions) back to the plan's default contribution rate, subject to their right to opt out again.
If you choose to do a voluntary re-enrolment, the process mirrors initial enrolment: issue advance written notice to affected employees, specify the effective date, describe the default rate and investment, and give employees a clear window — usually 30 to 90 days — to opt out before contributions restart.
Some employers tie re-enrolment to their annual open enrolment window to reduce administrative complexity. If your plan uses a third-party administrator (TPA), they will typically manage the notice generation and election tracking, but the fiduciary responsibility for ensuring the process runs correctly remains with the employer as plan sponsor.
State-run programs and what they mean for opt-outs
If your state mandates participation in a program like CalSavers, the opt-out rules are set by the state program, not ERISA. CalSavers, for example, automatically enrols eligible employees at a default contribution rate, and employees must actively opt out through the state program's portal. Employers in these programs have a narrower administrative role — primarily registering, submitting payroll data, and remitting contributions — but must still track opt-out elections and update payroll accordingly. Failing to remit contributions for employees who have not opted out can trigger state penalties.
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