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 of employment. 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 following paragraphs. SPRING 2019 BENEFIT INSIGHTS