The Benefits of Automatic Enrollment

Automatic Enrollment helps streamline retirement contributions, benefiting both participants and plan sponsors.

By offering a company-sponsored retirement plan, your organization is taking an important step toward helping your employees prepare for a more financially secure future. If you are offering an employer-sponsored 401(k) or 403(b) plan with salary-reduction contributions, then you currently have the option to add an Auto-Enrollment feature to your existing plan, which can drive more participation and deepen employee engagement.

What is Auto-Enrollment?

Auto-Enrollment is a tool that you can use to help ensure your employees are taking advantage of the benefits your company offers by automatically enrolling them in your retirement plan. With this feature, employees are not required to take action to contribute to their retirement plan or even decide what percentage of their salary to contribute. Auto-Enrollment takes the initial guesswork out of participating in the plan, while still allowing employees to adjust their per-paycheck contributions or to opt out if they decide to.

How does it work for new employees?

When a new employee is onboarding, they're automatically enrolled in the organization's retirement savings plan, and a predetermined percentage or dollar amount (set by their employer) is taken out of each paycheck and deposited into the employee's retirement account, in a preselected investment option (also known as a Qualified Default Investment Alternative). Employees have the opportunity to opt out of the plan at any time. Depending on the type of automatic enrollment arrangement, participants may be able to have automatically contributed salary deferrals returned if they request them within 90 days of their initial enrollment. They can also adjust their contribution amount or investment allocation at any time.

How does this impact existing employees?

Should you decide to add Auto-Enrollment to your company’s retirement savings plan, it can include existing eligible employees who are not currently participating or are contributing below the default deferral rate. As with new employees, existing employees will have a predetermined per-paycheck salary-reduction contribution deposited into their retirement savings account, until they choose to either modify that amount or to opt out of the program.

What are the benefits?

Auto-Enrollment can help your employees lay the foundation for a secure retirement. According to a survey by the Plan Sponsor Council of America, plans that auto-enroll employees have participation rates of over 88% compared to an average of 52% participation for "opt-in" plans.

But Auto-Enrollment doesn't just help employees. Organizations can also benefit through simplified administration, possibly lower plan fees, smoother compliance testing and potential tax credits. This feature can also be used in recruiting and retaining employees.

Mutual of America's Auto-Enrollment tool can help take the stress out of retirement planning and administration today, while helping set up your company and its employees for long-term success. To learn more about Auto-Enrollment and how it can help you, get in touch with your local Mutual of America representative.

The tax information contained herein is for informational purposes only. You should consult your financial adviser or attorney regarding your individual circumstances.

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