The most fulfilling part of my job as a Client Relations Manager at TSC is meeting with our clients and their advisors to review their company’s retirement plan. Lucky for me, 50% of my time is spent doing just that. In these meetings, I hear many of the same questions and concerns from business owners. One of the most common questions that I hear is: “How do I get my employees to participate in the plan and appreciate the value of this benefit I am providing?” This is where automatic enrollment in conjunction with a good education plan can really make a difference.
When the topic of auto enrollment is discussed, there are certain questions that inevitably come up. Does it work? What if an employee wants to opt out? Will my employees get upset with me for defaulting them into the plan? Will I have to play “baby-sitter” with my employees’ retirement savings? Based on my experience implementing auto enrollment for our clients, here are my answers to these questions:
Does it work? Yes, it does, and not only for large companies (a common misconception). Employees that don’t opt into the plan usually don’t opt out – all due to inertia. This employee behavior has shown to be consistent regardless of the size of the company they are employed by.
What if an employee wants to opt out? They can do so at any time by completing an enrollment or contribution change form. In addition, many employers choose to allow an employee to remove the contribution made within the first 90 days of the automatic enrollment.
Will my employees get upset with me for defaulting them into the plan? While the answer is generally no, I did have a client share an experience with me that I found very interesting. An employee was defaulted into the plan at a rate of 3%. The employee was going to opt out of the plan and ask for a refund of the first contribution made; however, upon reviewing the amount deducted and placed into the plan, she decided the amount did not have a significant impact on her take home pay. Furthermore, she realized that if it weren’t automatically deducted she would never have made the election to contribute for herself and decided to continue to defer into the plan.
Will I have to play “baby-sitter” with my employees’ retirement savings? You do not need to play baby-sitter if you adopt the auto enrollment provision. You will need to make sure employees are aware of the provision and distribute the appropriate employee notice and enrollment forms. From then on it works just as if they had made a positive election into the plan.
You may have asked yourself many of the same questions as above. Based on what you have read, could your 401(k) plan benefit from auto enrollment?
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Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.