Automatic enrollment (auto enrollment) for 401(k) plans was once seen as a risky proposition for plan sponsors. They feared that participants would complain about being put into a plan without opting-in. That perception is rapidly changing for many reasons. The main reason is that auto enrollment works really well and the results are striking.
The opening portion of the government white paper reads like a promotional brochure:
Do you want a retirement plan that provides a high level of participation and makes it easy for you to withhold employee contributions and select the investments for those contributions? Then you may want to consider an automatic enrollment 401(k) plan. Approximately 30 percent of eligible workers do not participate in their employer’s 401(k)-type plan. Studies suggest that automatic enrollment plans could reduce this rate to less than 15 percent, significantly increasing retirement savings. Whether you already have a 401(k) plan or are considering starting one, automatic enrollment 401(k) plans offer many advantages.
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Auto enrollment is now becoming a ubiquitous best-practices staple for plan sponsors. Those who employ it are seeing participant outcomes soar as it has increased participation rates more than any other program in the past 20 years. Still, many sponsors have lingering apprehension about automatically enrolling their employees in the company plan.
As stated in the white paper:
An automatic enrollment 401(k) plan:
- Helps attract and keep talented employees.
- Increases plan participation among both rank-and-file employees and owners/managers.
- Allows for salary deferrals into certain plan investments if employees do not select their own investments.
- Simplifies selection of investments appropriate for long-term retirement savings for participants.
- Helps employees begin saving for their future.
- Offers significant tax advantages (including deduction of employer contributions and deferred taxation on contributions and earnings until distribution).
Now, in a revised edition of a white paper from the Employee Benefits Security Administration (EBSA) and the Internal Revenue Service (IRS), (and distributed by the department of Labor) 401(k) plan auto enrollment takes on a new light. The IRS and EBSA have published a 22-page guide targeted towards small businesses on how to implement and maintain an auto enrollment plan.
