Use this article to understand how automatic enrollment and auto-escalation work in your Gusto 401(k), including default deferral rates, contribution increases, how to request a refund if you were enrolled without intending to be, and what to expect after submitting a refund request.
Automatic enrollment is a 401(k) plan feature designed to help eligible employees start saving for retirement without having to take action first. Instead of waiting for employees to opt in, the plan sets a default deferral rate — a predetermined percentage of earnings automatically withheld from each paycheck and contributed to the employee's 401(k) account.
All Gusto 401(k) plans include a version of an automatic contribution arrangement. Studies show that 90% of eligible employees participate in auto-enrollment plans, compared to 57% when a plan does not offer automatic enrollment.
Automatic enrollment offers several benefits for employees:
Removes the friction of getting started with retirement savings
Helps employees take advantage of any employer matching contributions
Contributions and gains receive tax-deferred treatment until distribution
Paired with auto-escalation, employees may save more over time
30 days before the plan start date — or before an employee becomes eligible — they'll get an email notification with their auto-enrollment date.
If an employee does not self-enroll or opt out by the deadline, they'll be automatically enrolled at the plan's default deferral rate. Their contributions will be invested into one of Gusto Investments' professionally managed portfolios based on their age and estimated timeline until retirement, until they make their own investment election.
Employees can adjust their contribution amounts or opt out at any time by signing in to their retirement dashboard and visiting the Contributions page.
The default deferral rate is the percentage of an employee's pay that will be deferred into their 401(k) account if they do not make their own election by the deadline. It only applies to employees who do not select their own contribution rate or fail to opt out in time. The rate is defined in the plan document — you can find it in the Summary Plan Description.
The rate that applies depends on when the plan was established:
Plans established on or after Dec 29, 2022, that do not meet an exception to the mandatory automatic provisions (MAP) under the SECURE 2.0 Act, and all qualified automatic contribution arrangement (QACA) plans: the default rate must be at least 3% but no more than 10%
Plans established before Dec 29, 2022, that meet at least one of the MAP exceptions and are not QACA plans: the default rate can be as low as 1%
Note: Under the SECURE 2.0 Act, all plans established on or after Dec 29, 2022, that do not meet a MAP exception must include either an eligible automatic contribution arrangement (EACA) or QACA provision.
Auto-escalation automatically increases employee contribution rates on a set schedule. It applies only to employees who are enrolled at the plan's default deferral rate — meaning those who have not made their own contribution election.
Once an employee manually sets their own contribution rate (an affirmative election), auto-escalation no longer applies. Future contribution increases will need to be made manually by changing your 401(k) contribution rate.
Example: If a plan has a default deferral rate of 3% and an annual 1% auto-escalation until employees reach 6%, all automatically enrolled employees will have their contribution rate increased by 1% each Jan 1 until they reach 6% — or until they make their own election.
Expand the section below to see the auto-escalation requirements that apply to your plan type.
The rules for auto-escalation depend on when the plan was established and its plan type:
Plans established on or after Dec 29, 2022, that do not meet a MAP exception, and all QACA plans: escalation must reach at least 10% but no more than 15%
Plans established before Dec 29, 2022, that meet at least one MAP exception and are not QACA plans: auto-escalation is not required
QACA plans must also meet the following minimum deferral rates each year:
Year
Minimum deferral rate
Year 1
3%
Year 2
4%
Year 3
5%
Year 4+
6%
If you were automatically enrolled but did not intend to contribute, you may be eligible for a refund. To qualify, you must meet both of the following:
Your plan includes an EACA or QACA provision (check your plan document)
Your refund request is submitted within 90 days of the first automatic contribution from payroll
Important: The 90-day deadline is set by the Internal Revenue Service (IRS), and no exceptions can be made. Do not delay in submitting your request, as missing this deadline will put your refund eligibility at risk.
If you meet both requirements, expand the sections below to submit a request and learn what to expect.
You'll need to set up your Gusto retirement account before you can submit a request. To request a refund, follow these steps.
Sign in to your retirement dashboard using one of these options:
Sign in to Gusto and go to Benefits. Under Savings, find 401(k) and select View, then select Manage 401(k)
Sign in directly at the Gusto Retirement sign-in page.
Select Settings in the main menu.
Select the company 401(k) account you'd like to get the refund from.
In the Contribution section, find Auto-enrollment refund, then select Learn more.
Review the information provided, then select Start refund request.
Verify your info, elect tax withholding, and choose how you want to get your refund — via direct deposit or check.
We'll keep you informed throughout the process with email notifications when the request is submitted, when it's approved, and when the funds are on their way.
The processing time depends on which refund method you choose:
Check: Standard processing and shipping take approximately 3 – 4 weeks after you submit the request
ACH deposit: Processing and fund transfers typically take 7 – 12 business days. You should see the deposited amount in your bank account within 3 – 4 business days after that
An auto-enrollment refund will be treated as a permissible withdrawal and included in your gross income for the year in which the refund was issued. You will get a Form 1099-R the following Jan to use when filing your taxes. The 10% early withdrawal tax penalty will not apply.¹
Requesting a refund will automatically set your deferral election to zero, but you can opt back in at any time. Sign in to your Gusto retirement dashboard, go to the Contribution page from the main menu, and increase your contribution rate to above 0%.
¹ This information is for general education purposes only and not intended to be tax advice. We encourage you to consult a qualified tax professional before requesting a withdrawal.