Automatic plan enrollment has proven to be one of the most, if not the most, effective tool towards improving the overall strength of a company retirement plan. Being that it is normally free to set-up, and once in place it is completely automated, it also makes the most sense. Companies everywhere are looking for ways to improve benefits, while at the same time reduce expenses. Implementing automatic plan enrollment will help strengthen your plan by increasing participation and increasing financial awareness, which hopefully leads to a more productive employee.
Although it has proven its effectiveness time and time again, there are a number of companies that are not aware that automatic plan enrollment even exists. This unfortunately is a breakdown in communication between the Financial Advisor and the plan administrator. It is a bit more work and responsibility for your Financial Advisor, but that’s what you are paying them to do. They should be educating you on how to best present your company retirement plan so that you can focus on running your business.
Once implemented into your plan documents, the use of automatic plan enrollment is quite simple. Instead of waiting for your newly hired employees to sign up for the plan once they become eligible, those employees are automatically enrolled. A predetermined amount is withheld from the employee paycheck each pay period, usually 4%-6%, and that money is automatically deposited into their 401k account. The employee has the ability to increase or decrease the contribution amount if they want.
Along with setting up the new employee account, an appropriate investment is also selected for them. Most companies use the Target Date Funds as the investment alternative for automatic plan enrollment. This helps to ensure the employee is in an age based investment that is most appropriate. If the employee wants to invest in something that is more aggressive or conservative, they have the ability to go into their account and make whatever changes they want. It’s all very simple to complete.
If an employee does not want to be in the company retirement plan, there is an easy to follow “opt-out” process for them to complete. Once they complete this process, the employee will be removed from the plan, and their payroll contributions will end. What you will more than likely find is that once people are in the plan, they tend to stay in. It’s the job of your Financial Advisor to help educate your employees as to the benefits of the company retirement plan. If done correctly, your employees will understand both the short and long term benefits of participating in the plan. Companies of all sizes use the automatic plan enrollment feature to help strengthen their plan, and increase employee participation.
Besides strengthening your company retirement plan, automatic plan enrollment helps reduce wasted time for your Human Resources staff. One of the biggest complaints from HR staff is the amount of time they waste trying to track down new employees to get all of their paperwork completed and submitted. Automatic plan enrollment eliminates this problem as each new employee is automatically enrolled. The enrollment burden now falls on the shoulders of your employees as it is their responsibility to “opt-out” if they don’t want to participate.
Automatic plan enrollment is an easy to use, cost-free way to strengthen your company retirement plan, while at the same time increasing plan participation, increasing financial awareness amongst your staff, and hopefully developing a more productive and educated employee. Our years of retirement planning experience have shown us that a financially educated employee is a healthier, more productive employee.