6 Reasons to Offer Automatic Enrollment in Your 401(k) Plan

Author: Siân Killingsworth / 24 May 2023 / 401(k) Plan Information, Personal Finance

To help your small business employees save for their futures, consider adding automatic enrollment to your 401(k) plan. This is an effective method of encouraging them to save. This is a strategy worth considering for a variety of reasons. Not only does it motivate employees to save for retirement, but it also is advantageous to your small business. Here are six reasons why offering automatic enrollment is advantageous:

1. Compliance with Future Requirements

Automatic enrollment is expected to become a mandatory feature in most plans starting in 2025. Implement automatic enrollment now. This will put you ahead of the curve. Ensure that your small business is prepared to meet future regulatory requirements. It demonstrates your commitment to compliance and positions your business favorably.

2. Tax Savings Opportunities

When you incorporate automatic enrollment into your small business 401(k) plan, you may qualify for tax savings of up to $500 per year for the first three years of offering it. These savings can help offset plan costs and provide financial relief for your business.

3. Increased Plan Participation

Remove the decision-making burden from your employees. Make it easy for them to save for retirement with automatic enrollment. This will significantly increase plan participation rates. Studies have shown that streamlining your 401(k) plan with features like automatic enrollment can lead to participation rates surpassing 90%. This high level of engagement ensures more of your employees are actively saving for their retirement.

4. Improved Retirement Savings

By automatically enrolling employees in the plan and setting a default contribution rate, you create a pathway for improved retirement savings. This effortless enrollment approach increases the likelihood that employees will save for retirement. In fact, research indicates that employees who are automatically enrolled in a plan tend to contribute at higher rates compared to those who enroll voluntarily.

5. Attracting and Retaining Top Talent

Offering a retirement plan with automatic enrollment sends a strong message to your employees that you genuinely care about their financial future. This becomes a compelling selling point when attracting new talent and retaining your current workforce. Retirement benefits are becoming more important than just salary. Automatic enrollment sets your business apart and makes it easier for employees to save for the future. This will help you attract and retain existing and potential employees.

6. Streamlined Administration

By automatically enrolling employees, you reduce the need for extensive efforts to encourage participation in your small business’s 401(k) plan. Additionally, setting a default contribution rate simplifies plan administration, reducing administrative burden and freeing up time for other essential tasks.

Embrace automatic enrollment to help your employees save for retirement. This will also improve the competitiveness, compliance, and administrative efficiency of your small business. It’s a proactive approach that benefits both your employees and your business’s long-term success.

 

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.