Is it time to consider automatic enrollment?
You may want to consider automatic enrollment provisions in your 401(k) plan as a way to increase plan participation. An automatic enrollment 401(k) plan:
- Can help attract and keep employees
- Helps employees begin saving for their future
- Can improve discrimination testing results
- Allows for salary deferrals into certain plan investments if employees do not select their own investments.
An automatic enrollment 401(k) plan means employers deduct a certain percentage from each eligible employee’s paycheck and deposits it into the employee’s retirement account. An employee can opt out of the automatic deduction from their salary or change the amount they have deducted. Automatic enrollment is a feature that can be added to the following kinds of new or existing retirement plans: 401(k), 403(b) governmental, 457(b), SARSEP and SIMPLE IRA plans. An employer may add an automatic contribution arrangement feature to its plan by amending an existing plan to state that it will use an automatic contribution arrangement. Generally the amended plan would need to specify:
- The plan’s default percentage rate for automatic enrollment contributions
- The employee’s right to elect not to contribute to the plan
- The procedures for how an employee can elect not to contribute or contribute an amount different from the plan’s default percentage rate for automatic enrollment contributions
- If an investment election is permitted by the plan, how an employee’s automatic enrollment contribution will be invested if the employee does not make an investment election.