Boost Employee Retirement Outcomes and Stay Compliant

For employers and HR professionals managing retirement plans, the dual benefits of enhancing employee retirement outcomes while adhering to legislative requirements can seem elusive. Juggling compliance and encouraging plan participation is challenging, but there’s good news. Auto-enrollment and auto-escalation features offer a straightforward, effective solution to these challenges.

Understanding Auto-Enrollment

Auto-enrollment is a feature that automatically enrolls eligible employees into a retirement plan, typically with a contribution rate set between 3% to 6%. By automatically enrolling employees, companies help participants overcome the hurdle of inertia — the ever-present tendency to delay or opt-out of beneficial actions. This not only increases plan participation but also ensures employees take full advantage of employer-matching contributions, significantly boosting their savings potential. Importantly, employees maintain the full flexibility to opt-out or adjust their contribution levels as needed.

Leveraging Auto-Escalation for Growth

Auto-escalation complements auto-enrollment by gradually increasing employee contributions, usually by 1% annually, until they reach a cap of 10% to 15%. This aligns contributions with expected income growth, mitigating the need for employees to manually adjust their contribution rates. It’s an effective way to foster long-term savings, ensuring that employees' contributions grow alongside their income and future financial needs.

Keeping Up with Compliance

In an effort to improve retirement plan participation, new mandates will come into effect in 2025 for plans initiated after December 29, 2022. These mandate starting contributions of 3% to 10%, escalating annually to a range of 10% to 15%. While businesses under three years old or those with 10 or fewer employees might be exempt, others could benefit from potential tax credits—up to $5,000 annually for three years. Adopting auto-enrollment and auto-escalation can significantly decrease compliance risks, transforming burdensome requirements into structured, strategic applications.

Beyond Administration: Strategic Financial Tools

Auto-enrollment and auto-escalation are not merely administrative tools—they’re strategic enablers for employee and employer benefits alike. They ease compliance burdens, unlock potential financial incentives, and most importantly, significantly enhance the retirement outcomes of employees. Employers are encouraged to consult their retirement plan advisor to evaluate current readiness and explore strategies for integrating these features effectively into their plans. Unlock the potential for a smoother, more effective retirement savings strategy today.