To attract the best employees, you need to have a great benefits package. Besides offering insurance, having an employee retirement plan is an excellent incentive for retaining top talent.
Having a retirement plan with auto-enrollment provides great benefits to both employee and employer.
What Is Auto-Enrollment?
An auto-enrollment plan is a retirement savings plan where employees are automatically enrolled to contribute a certain amount of their salary each payday. Unlike a regular 401k, the employee does not have to take action or agree to participate in an employer-sponsored retirement plan.
How Automatic Enrollment Works
Automatic enrollment is a feature that can be added to new or existing retirement plans. They include a 401k, 403b, governmental 457b, SARSEP, and SIMPLE IRA plans.
The way automatic enrollment works is that employers deduct a certain percentage from each eligible employee’s paycheck and deposit it in their retirement account. Employees can opt-out of the automatic deduction from their salary or change the amount at any time.
The Benefits of Auto-Enrollment for Employers
The IRS approved plan, called the automatic contribution arrangement, which means your employees are automatically enrolled in your employer-sponsored plan. The automatic enrollment feature encourages your employees to defer their salary by default, instead of waiting to request enrollment.
Here are the advantages of automatic enrollment:
More employees contribute
Studies show that auto-enrolled employees save more over time
Employers are helping their employees prepare for retirement as soon as they’re eligible
Auto-enrollment has significant tax advantages for employers, including deductions for employer contributions (otherwise subject to tax)
Also, under the SECURE Act, the employer will enjoy an additional tax credit of $1,500 over the first three years of the plan.
Auto-Enrollment Benefits for Employees
The main benefit of auto-enrollment for employees is that it gets them to start saving.
Automatic enrollment puts employees on the path to retirement as soon as they are eligible to join the plan. In some instances when default investment selections are made, it can lead to larger account balances for the employee.
Auto-enrollment benefits both employers and employees. The employers are helping their workers prepare for retirement, and the employees are building up their savings for when they will no longer be working.
If you need any help finding a plan design that makes sense for your company, schedule a plan discussion with us.
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President