Benefit Insights | Automatic Enrollment Is On The Rise Spring 2019
A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES
AUTOMATIC ENROLLMENT IS ON THE RISE
WITH THE FUTURE OF SOCIAL SECURITY IN QUESTION, IT IS
BECOMING EVER INCREASINGLY IMPORTANT FOR WORKERS
TO SELF-PREPARE FOR POST-RETIREMENT LIVING. Studies
show that approximately one out of every three eligible workers
choose NOT to participate in their employer-sponsored 401(k)
AUTOMATIC CONTRIBUTION ARRANGEMENT
The Automatic Contribution Arrangement (ACA) is the most
basic of the automatic enrollment options and has existed since
the late 1990’s. A 401(k) plan with an ACA provides for increased
participation by stating that eligible employees will be
plan. Offering automatic enrollment in your 401(k) plan is a way automatically enrolled in the plan unless they elect otherwise.
for you, as Plan Sponsor, to help lend a hand to employees that A beginning “default” withholding percentage or dollar amount
are not fully aware of the significance of having a post-retirement is chosen by you as the Plan Sponsor. Employees have the right
source of revenue. to choose not to have salary deferred, or to elect a percentage
or dollar amount that is different from the default withholding.
Plans with an automatic enrollment feature nearly doubled
over the past decade according to the Plan Sponsor Council of
America’s (PSCA) 60 th Annual Survey of Profit Sharing and 401(k)
Plans. PSCA, part of the American Retirement Association, found
that 59.7 percent of plans had an automatic enrollment feature
in 2016 compared to 35.6 percent in 2007. Having an automatic
enrollment provision can also help allow Highly Compensated
Employees (HCE’s) contribute more to the plan by either boosting
the participation rate of Non-Highly Compensated Employees
(NHCE’s) or by satisfying the Safe Harbor requirements which
exempt the plan from certain nondiscrimination testing.
If the ACA provision is newly added to the plan, you as the Plan
Sponsor may elect to apply the automatic enrollment to existing
participants or apply it solely to new employees moving forward.
If your plan allows for Roth deferrals, the default withholding
may be traditional pre-tax 401(k) or Roth-based. You even have
the option of escalating the initial automatic deferral amount
annually for employees, thus increasing their savings every year
DID YOU KNOW?
Your current plan document gives you the option to choose More than half of plans with automatic
enrollment are only set up for new hires.
different levels of automatic enrollment, described in the 401k Specialist Magazine, June 2018