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401k Plan Auto-Enrollment Does Come with Risks that Need to be Understood

401k Plan Auto-Enrollment Does Come with Risks that Need to be Understood

401k plan auto-enrollment is being implemented by many retirement plans as a strategy for nudging employees into a 401k plan. Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU) recently spoke with Elaine, CFO of a company with approximately 200 employees.  At the end of a TPSU Program held on the campus of University of California, Irvine, Elaine shared some of her views on 401k plan auto-enrollment.  Elaine oversees multiple tax qualified retirement plans at her organization.  She is aware of the benefits of 401k plan auto-enrollment however she is also knows there are risks associated with 401k plan auto-enrollment. Learn how this CFO is weighing the risks of 401k auto-enrollment with the benefits of that strategy.

Full Transcript Here

This is Fred Barstein with 401k TV. Just completed a TPSU program, in lovely Orange County Irvine, at UC Irvine. I am here with Elaine. Welcome, Elaine.

Thank you.

Is it okay if we ask you a few questions?


Thank you. I’ve never had anyone say no, so that’s good. Before we do, just let our audience know a little bit about you, your role, and the size of your organization.

The size of our organization is above 200, just a little over 200 employees.


I’m the CFO, so I manage three retirement plans. A 401k for associates, a 401k for shareholders and staff, and then a cash balance plan.

Very good. We’re a big advocate of automatic enrollment and the industry is moving there, but you had some concerns. What were the concerns that you have, on automatic enrollment?

Well I’ve had experience before with missed deferrals. So if someone submits a deferral, basically for their 401K and we forget to process it through payroll, then the firm is on the hook for that contribution plus missed growth.


My biggest concern is the fact that, if we have this automatic renewal and this automatic enrollment, then what if we miss somebody in the process of updating everything? Because everything in HR is basically manual, and so they have to go in and up everybody up by a percent. My worry is that we’ll get to the end of the year, we’ll close out the year, and then we’ve missed something.


I’m in charge of it, and I’m administrating the retirement plan, then I’ve got a fiduciary problem, and a risk issue, maybe penalties, maybe some additional contributions, I’m not really sure. I guess I’m really fearful of the risk.

Right. You already have enough liability. You don’t want to create anymore.

Create. I mean, yes correct.

It doesn’t mean you won’t ever do it. You just want to make sure you’ve answered all those questions?


Those are valid questions, very good.

Final question for you. Couple of things you picked up, that you may want to take back and do, other than automatic enrollment of course?

I like the tiered levels of the QDIA. Then I also want to look into non qualified plans.

Right. When you say tier level, QDIA, it means different types. A QDIA for different types of employees based on their age or something like that?

Correct. We have target date funds for different retirement dates, but it doesn’t meet whether you’re older or younger …

Right, right. The advocate is that at 45 or 50 years old, you might need to do more customized managed accounts, so that’s a great point.

Well thank you for your time Elaine. Thank you for agreeing to do our video. Thank you for watching 401k TV. Please stay tuned.


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