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Why Should We Bother With 401(k) Plan Auto-Enrollment?

Many employers with long-established 401(k) plans hesitate to add automatic enrollment. (Under an ‘auto-enroll’ feature, eligible participants automatically join the plan unless they affirmatively elect otherwise.) Employers’ hesitation may arise from unfamiliarity or just a reluctance to rock the boat. Yet there are several good reasons to ‘bother’ with auto-enroll:

Broader participation. First and foremost, many statistical studies over the years have shown that auto-enroll boosts plan participation. This, in turn, increases a 401(k)’s value to both your organization and its staff. It can also improve retention — especially if you match contributions.

Boosted productivity. Higher participation means more employees are funding their retirements. Therefore, they are more likely to retire rather than stay on the job indefinitely to pay living expenses. A dynamic workforce tends to be more productive than a stagnant one.

Better bargaining. The greater the participation rate and dollars in the plan, the more leverage employers have to negotiate with service providers. So, auto-enroll can simply lead to a better 401(k).

Converting to auto-enroll does entail some work. You will need to adopt a written plan document, arrange a trust for the plan’s assets, potentially upgrade your record keeping system, and formally give notice to employees about the change. Interested? Please let us know how we can help you further consider auto-enroll and undertake the process of adding it to your 401(k).

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