Making a meaningful Difference for Plan Participants. During a recent Fiduciary Education Program of The Plan Sponsor University (TPSU), there was a lively discussion about a 401k plan sponsor who was taking an aggressive stance when implementing auto enrollment. During the “What is Working” segment of the TPSU Program, the plan sponsor indicated that auto enrollment and auto increasing the annual amount of the default deferral was having a positive impact on the company’s entire workforce.
It is not unusual for companies to auto-enroll their employees into the 401k plan at three percent of compensation. And that is exactly where this company, with approximately 500 employees, began auto-enrolling each employee at three percent of their compensation. After the first year, the company indicated that there was a favorable amount of buzz and positive feedback from the workforce. Employees were sharing information and comparing experiences within the company. Word quickly spread that money that was being defaulted into the plan was not missed and that it cost participants less than they had anticipated. (This was due to the tax-deferred status of the plan contributions.)
The Retirement Committee decided to make a bold move at the start of the second new year of the plan. The Retirement Committee re-enrolled all employees into the plan at the new default rate of 4%. The Retirement Committee was prepared for pushback – but experienced very little.
The company has continued this practice and has increased the default deferral amount by one percent every year since. Today, the company auto re-enrolls plan participants into the 401k plan at a rate of eight percent. Currently, the company sees no reason to stop the practice of increasing the default by one percent per year. The Retirement Committee has their sights set on 10% and then they plan to reassess the process.
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