5 Reasons to Offer Automatic Enrollment to Your 401(k) Plan

Author: Siân Killingsworth / 10 May 2023 / 401(k) Plan Information, Small Business 401k

If you’re looking for ways to encourage your small business employees to save for their futures, we have two words for you: Automatic enrollment. Not only is this a great way to encourage your employees to save for retirement, it also has benefits for your small business. (Talk about a win-win.)

What is Automatic Enrollment?

We’re glad you asked! Automatic enrollment is a feature that lets employers (you) automatically enroll their employees in a 401(k) plan. (What’s in a name?)

This means unless they choose to opt out, your employees are enrolled in your small business’s 401(k) plan without anyone having to lift a finger. Their contribution is deducted from their paycheck automatically, typically at a set percentage.

Benefits of Offering Automatic Enrollment

Auto-enrollment is great for several reasons. But first of all, it is a plan feature that will be required in most plans starting in 2025. Why not get ahead of the curve now?

1. Tax Savings

When you add automatic enrollment to your small business 401(k) plan, you may qualify for up to $500 per year for the first three years you offer it. That can help offset plan costs.

2 Increased Plan Participation

Automatic enrollment takes the decision-making process out of your employees’ hands and makes it easy for them to start saving for retirement. Some studies have shown that when you streamline your 401(k) plan, you can increase participation rates to over 90%.

This means that unless they specifically choose to opt out, all of your employees who are eligible to participate in the 401(k) plan will be automatically enrolled in the plan. This is a great way to motivate your employees to save for retirement.

Additionally, it can benefit your small business. This eliminates the need for anyone to manually sign up each employee, making the process much simpler and more efficient. Especially when you add time-saving features like automatic enrollment.

This means that unless any of your employees choose to opt out, they will automatically be enrolled in your small business’s 401(k) retirement plan without any additional action being taken. The employees will not need to complete any forms or provide any additional information in order to be enrolled in the plan.

3. Improved Retirement Savings

By enrolling employees in a plan and setting a default contribution rate, they’re more likely to save for retirement. Yes, it’s that easy. In fact, studies have shown that employees who are automatically enrolled in a plan contribute at higher rates than those who enroll on their own.

4. Attract and Retain Top Talent

By offering a retirement plan with automatic enrollment, you are showing your employees that you care about their financial future. This can be a great selling point when attracting new employees and retaining your current staff.

Besides, offering a retirement plan at all is the bare minimum these days when it comes to benefits beyond salary. Adding automatic enrollment is a nice little extra that makes saving for the future that much easier for your current and potential employees.

5. Easy Administration

By enrolling employees automatically, you won’t have to spend as much time encouraging employees to enroll in your small business’s 401(k) plan. You can also set a default contribution rate, which makes the plan even easier to administer.