Why Adding Automatic Escalation to Your 401(k) Plan Is a Win-Win
Cristina Martinez / 12 Sep 2023 / 401(k) Plan Information, Personal Finance, Small Business 401k

For small business owners, offering a robust 401(k) plan is a strategic move that benefits both you and your employees. And one feature in particular that can substantially enhance your retirement plan is automatic escalation. In this article, we will explore how implementing this feature can provide advantages to both your business and your employees.
What is Automatic Escalation?
Automatic escalation is a feature within a 401(k) plan that incrementally increases an employee’s contribution rate. Most of the time this increase happens annually, but employers can set it to occur at different pre-defined intervals.
For instance, if an employee initially contributes 3% of their salary to their 401(k), the automatic escalation feature might increase this contribution by 1% each year. That means next year, their contribution will be 4%, and 5% the year after that.
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Benefits to Employees
Effortless Savings Growth
The automatic nature of this feature simplifies the savings process for employees, allowing them to accumulate greater retirement funds without requiring them to take any manual action. (The phrase you’re looking for is compound interest — your retirement account’s best friend.)
Flexible Options
While the escalation is automated, employees generally retain the option to opt out or adjust the rate. This gives them the control they need and want while providing a layer of flexibility and personal choice.
Better Retirement Readiness
Automatic escalation helps bridge the gap between actual savings and the recommended retirement savings levels. It can significantly enhance your employees’ financial security in their post-work years.
Benefits to Employers
Competitive Employee Benefits Package
A 401(k) plan featuring automatic escalation makes your benefits package more attractive to potential hires. Today’s job market is highly competitive. Offering advanced features in your retirement plan could be a decisive factor for candidates evaluating employment offers.
Reduced Employee Turnover
A comprehensive 401(k) plan can increase employee satisfaction and contribute to lower turnover rates. This goes a long way toward reducing the costs associated with recruiting and training new employees.
Tax Incentives
Employer contributions to 401(k) plans are generally tax-deductible. Because automatic escalation encourages higher employee contributions, it may also offer an opportunity for increased employer matching contributions. This in turn could result in additional tax benefits for the company.
Positive Work Environment
Seeing their retirement savings grow can significantly boost employee morale, creating a more positive and productive work environment.
Implementation Steps
Adding automatic escalation to your 401(k) plan is typically a straightforward process. Your plan provider can assist with the necessary configurations. It is crucial to communicate the introduction of this feature clearly to your employees. Include details about how it functions and how they can make adjustments if they so choose.
If you’re interested in adding automatic escalation to your company’s existing Ubiquity 401(k) plan, our Client Experience team is waiting for you!
Your Takeaway
Adding automatic escalation into your company’s 401(k) plan is a mutually beneficial strategy. It empowers your employees to build a more secure retirement with less effort. At the same time, it offers your business multiple advantages, from attracting top talent to potential tax benefits. Given the simplicity of its implementation, automatic escalation is a feature that can add significant value to your employee benefits package.
Please refer to Important Information for details.