The 2026 Auto-Enrollment Reset: SECURE 2.0, Plan Demographics, and the Asset Manager Stack

Section 101 mechanics and the 2025 to 2026 compliance window #

SECURE 2.0 Section 101 added IRC Section 414A, requiring all 401(k) and 403(b) plans established after December 29, 2022 to operate as Eligible Automatic Contribution Arrangements once the plan reaches its first plan year on or after January 1, 2025. The default deferral must be 3 to 10 percent of compensation in the first year, escalating one point each year to a minimum 10 and maximum 15 percent. The arrangement must permit a 90 day permissible withdrawal and default into a QDIA under 29 CFR 2550.404c-5, in practice a TDF, balanced fund, or managed account.

Four classes of plans are exempt: plans established on or before December 29, 2022, SIMPLE 401(k) plans, governmental and church plans, and plans of employers with 10 or fewer employees or fewer than three years in business. IRS Notice 2024-2 and proposed regulations under REG-100669-24 clarified the start-up exemption and the treatment of multiple-employer and merged plans. EBSA Field Assistance Bulletin 2025-01 confirmed that the default need not override existing elections, that the QDIA safe harbor remains intact, and that 29 CFR 2550.404a-5 fee disclosure obligations continue to apply.

Participation, deferral, and the 92 versus 62 gap #

Vanguard's How America Saves 2024, drawing on 4.9 million participants across 1,500 plans, reported 92 percent participation in auto-enrollment plans against 62 percent in voluntary plans. The gap is largest among workers earning under USD 30,000 (84 versus 31 percent) and workers under 25 (83 versus 33 percent). Average employee deferral was 7.4 percent in 2023, with employer contributions adding 4.6 percent for a combined 12.0 percent savings rate. Some 96 percent of Vanguard auto plans also defaulted into automatic escalation, stepping from 3 percent by 1 point a year toward a 10 percent ceiling.

BLS National Compensation Survey 2023 reported DC access for 73 percent of private-sector workers and participation of 56 percent, a 17 point gap among those with access. Section 101 closes that gap inside the access universe by flipping the default to opt-out, with coverage gains compounding over seven to ten years. Fidelity's Q4 2024 Retirement Analysis recorded 24.4 million 401(k) accounts averaging USD 132,300, a 9.4 percent deferral rate, and a record 22 percent of eligibles making catch-up contributions.

Roth share continues to rise, reaching 21 percent of Vanguard contributions in 2023 against 14 percent in 2018. Section 603 requires Roth treatment of catch-up contributions for participants earning above USD 145,000 of FICA wages, with IRS Notice 2023-62 extending the transition through 2025. Section 604 permits Roth employer matching and nonelective contributions, implemented at scale on Fidelity, Empower, and Vanguard during 2024.

Coverage gap, state auto IRAs, and the small plan tail #

EBRI Issue Brief 596 estimated 57 million private-sector workers without plan access in 2023, concentrated in firms below 100 employees and in accommodation, food services, construction, and personal services. Pew placed small-firm coverage at 27 percent for firms under 10 employees and 49 percent for 10 to 49, against 80 percent above 500. State auto-IRAs absorbed a meaningful residual: CalSavers reported 1.0 million funded accounts and USD 1.4 billion at end 2024, OregonSaves 130,000 and USD 380 million, Illinois Secure Choice 170,000 and USD 250 million, with smaller programs in Connecticut, Maryland, Virginia, Colorado, Maine, New Jersey, and New York. Georgetown CRI estimated cumulative state coverage of 25 million workers by Q4 2024.

SECURE 2.0 opened two channels for the small-plan tail. Section 102 expanded the 45E start-up credit to 100 percent of administrative costs for employers up to 50 employees, capped at USD 5,000 for three years, plus a 45E(f) employer contribution credit up to USD 1,000 per employee for five years. Section 121 created the Starter 401(k) and Safe Harbor 403(b), deferral-only designs with a USD 6,000 cap. Section 106 widened PEP access to 403(b) sponsors. EBSA's PPP register listed 130 registered providers by Q1 2026, including Empower, Fidelity, Mercer, Pentegra, Aon, Paychex, ADP, Principal, and Transamerica.

Small-plan economics still bite. All-in fees on single-employer 401(k) plans below USD 5 million in assets run 0.80 to 1.40 percent annually, against 0.30 to 0.50 percent above USD 100 million. PEPs cut that to roughly 0.55 to 0.75 percent on a USD 10 million pooled balance, and the new credits absorb most of the residual cash cost in years one to three. The binding constraint on further coverage gains is sponsor adoption rather than participant opt-in, the inverse of the pre-SECURE 2.0 problem.

Target date funds, the asset manager stack, and the to-through debate #

Target-date funds are the dominant default. Morningstar's 2024 Target-Date Strategy Landscape reported USD 3.5 trillion in TDF assets at year-end 2023 (USD 1.85 trillion in CITs, USD 1.65 trillion in mutual funds), growing at a 12 percent CAGR over 2018 to 2023. Cerulli projects USD 4.0 trillion by 2027. The top six providers held 92 percent of TDF assets: Vanguard 38, Fidelity 14, T. Rowe Price 12, BlackRock 12, Capital Group American Funds 9, JPMorgan SmartRetirement 7 percent. State Street, Schwab, TIAA, and Principal hold the residual.

Pricing has compressed sharply. The asset-weighted TDF expense ratio fell from 0.66 percent in 2014 to 0.30 percent in 2023, with index series at Vanguard, BlackRock, and Schwab at 0.06 to 0.10 percent and active series at Capital Group, T. Rowe Price, and JPMorgan in the 0.30 to 0.65 percent range. The mutual fund to CIT rotation accelerated through 2024 as sponsors documented 5 to 15 basis points of savings in CIT wrappers.

The to-through debate is unresolved. To funds, like Vanguard Target Retirement, hold roughly 50 percent equity at the target date and de-risk for seven more years. Through funds, like T. Rowe Price Retirement, hold 55 percent at the target date and de-risk for 30 years past it. SECURE 2.0 Section 201 extended the QDIA safe harbor to TDFs with guaranteed lifetime income components, and Section 202 raised the RMD age to 73 in 2023 and 75 in 2033. In-plan annuity adoption remains slow: ICI reported fewer than 10 percent of large plans offered an in-plan guaranteed income solution at end 2024, despite the SECURE 2019 Section 204 safe harbor and the Section 109 portability rules. BlackRock LifePath Paycheck, Income America 5ForLife, AllianceBernstein Lifetime Income Strategy, and Nuveen LifeCycle ITRO remain the most visible products.

Recordkeeper consolidation and the operating model squeeze #

Recordkeeping is now an oligopoly. Cerulli's US Retirement Markets 2024 placed Fidelity Workplace Investing at USD 4.4 trillion and 24.4 million participants, Vanguard Institutional at USD 2.0 trillion and 4.9 million, Empower at USD 1.7 trillion and 18.6 million, Principal at USD 850 billion, TIAA at USD 800 billion. The top five hold roughly 60 percent of recordkeeping assets and over 70 percent of new plan starts under USD 50 million, with Paychex, ADP, Ascensus, Voya, and Transamerica behind. Empower now consolidates MassMutual (2021), Prudential Retirement (2022), and the Putnam DC book (2024).

Section 101 raises near-term operating cost. Auto-enrollment requires notice 30 to 90 days before each plan year, an EACA disclosure, an annual escalation notice, and a permissible withdrawal mechanism. Section 305's expansion of EPCRS lets recordkeepers self-correct most operational failures without IRS filing, lowering audit tail risk while raising documentation burden. The 401(k) Averages Book 2024 reported per-participant recordkeeping fees of USD 50 to 110 for 100-life plans and USD 25 to 45 above 5,000 lives. Revenue sharing continues to compress under 29 CFR 2550.408b-2.

Three operating-model trends are visible. First, managed account default for higher-tenure or higher-balance participants, with Empower Personalized Retirement, Fidelity PPA, and Vanguard Digital Advisor crossing 6 million enrollees by Q4 2024. Second, student loan match under Section 110, implemented at Abbott, Comcast, Chipotle, Verizon, and roughly 8 percent of plans surveyed by PSCA. Third, Section 127 emergency savings linked accounts, capped at USD 2,500, available on Fidelity, Empower, and Vanguard by Q3 2024 but adopted by under 5 percent of sponsors.

Implications for sponsors, asset managers, recordkeepers, and policymakers #

Plan sponsors of new 401(k) and 403(b) plans face a binary choice: comply with Section 101 at a 3 to 10 percent default with one-point auto-escalation, or remain inside an exempt category. The best practice converging across Mercer, Aon, Willis Towers Watson, NEPC, Callan, and Cammack is a 6 percent initial default, 1 percent annual escalation, 10 percent ceiling, and a TDF QDIA selected on documented review of glide path, fee, and series tenure. Reenrollment every three to five years is now standard. The 92 percent participation lift and 8 to 9 percent deferral lift are robust across Vanguard, Fidelity, and EBRI cross sections.

Asset managers face a stratified opportunity. Index TDF series at Vanguard, BlackRock, State Street, and Schwab capture the bulk of new flows on price, with marginal economics under 10 basis points. Active series at Fidelity, T. Rowe Price, Capital Group, JPMorgan, and PIMCO retain a defensible through-glide-path and active-share position, with differentiation increasingly driven by retirement income features rather than equity alpha. The next product cycle is the in-plan guaranteed-income overlay: BlackRock LifePath Paycheck, Income America 5ForLife, and AllianceBernstein Lifetime Income Strategy combine a TDF chassis with a deferred annuity sleeve activated near the target date. Adoption depends on sponsor comfort with the SECURE 2019 safe harbor and on insurer counterparty diversification.

Recordkeepers face participant-side fee pressure and platform-side operating leverage. The pivot from revenue sharing to explicit per-participant fees, the rise of managed account defaults, and the SECURE 2.0 lost-and-found database under Section 303 push recordkeeping toward a regulated utility margin. Consolidation continues: 2020 to 2024 saw MassMutual, Prudential, Wells Fargo Institutional Retirement, and Putnam DC absorbed by Empower; the next M&A vector is regional recordkeepers below USD 100 billion.

Policymakers should anchor the next reform cycle in three priorities. First, close the access gap among the 32 million workers in firms below 50 employees outside both ERISA plans and state auto-IRA jurisdictions, by funding the SAVER's Match under Section 103 (effective 2027) and supporting state-program coordination through EBSA. Second, harmonize Section 101 with state auto-IRA mandates so that small-employer plan formation is not penalized. Third, monitor TDF concentration risk and the to-through glide path question, with focus on sequence-of-returns risk for participants retiring in the 2025 to 2035 window. Section 101 is the largest expansion of automatic features in US retirement policy since the Pension Protection Act of 2006. Whether it raises the median replacement rate by 5 to 10 points by 2035, as EBRI's Retirement Security Projection Model implies, depends on default deferral discipline, escalation persistence, and the unresolved retirement-income architecture.

Sources #

• SECURE 2.0 Act of 2022, Division T, Consolidated Appropriations Act 2023, Public Law 117-328
• IRS Notice 2024-2, Miscellaneous Changes Under the SECURE 2.0 Act of 2022
• Proposed Regulations Under Section 414A, REG-100669-24
• Field Assistance Bulletin 2025-01, Automatic Enrollment Under SECURE 2.0 Section 101
• How America Saves 2024
• Q4 2024 Retirement Analysis
• EBRI Issue Brief 593, Retirement Confidence Survey 2024
• EBRI Issue Brief 596, Coverage Gap and Workplace Retirement Plan Access
• ICI 2024 Investment Company Fact Book and Quarterly Retirement Market Data
• 2024 Target-Date Strategy Landscape
• US Retirement Markets 2024
• National Compensation Survey, Employee Benefits in the United States March 2023
• State Automated Retirement Savings Programs Tracker
• CalSavers Quarterly Program Report Q4 2024
• 401(k) Plan Coverage and Small Business Retirement Plans
• Tips for ERISA Plan Fiduciaries on Target Date Retirement Funds
• 401(k) Averages Book 2024
• Retirement Security Projection Model 2024
• Pooled Plan Provider Registration Database