Mastering Contributions
Definition of The Term
Automatic enrollment is a feature employers may incorporate into retirement savings plans like a 401(k) or SIMPLE IRA. This process automatically defers a portion of an employee’s wages into their retirement plan unless they specifically choose not to contribute or elect a different contribution amount. The intent behind automatic enrollment is to encourage employee participation in retirement savings by default, thus fostering increased savings rates.
Key Points
Additional Resources + Information
Employee Options
Employees must be provided with the choice to opt-out or to alter the amount that is automatically deferred from their wages before any such deferral occurs. Furthermore, they often have a 90-day period to withdraw their contributions under certain employer plans.
Applicability
Automatic enrollment can be integrated into various retirement plans, including 401(k), 403(b), governmental 457(b), SARSEP, and SIMPLE IRA plans.
Enrollment Notification
Employees are typically notified about the auto-enrollment terms around 30 days before the plan's start date or their eligibility date. If no action is taken by the employee by a specified deadline, they will be auto-enrolled.
Contributions and Investment
Once auto-enrolled, employees start contributing at the default deferral rate. Their contributions are then invested in professionally managed portfolios that align with their age and projected retirement timeline.
Adjusting Contributions
Employees have the autonomy to change their contribution rates or opt out at any time by accessing their retirement plan dashboard.
Default Deferral Rate
The default deferral rate is predetermined and applies to employees who do not make an individual election regarding their contribution rate or do not opt out before the onboarding deadline.