Auto Enroll vs. Employees Doing Nothing
Posted by Andrea Vassiliadis on Mon, Dec 28, 2009 @ 12:57 PM
The US government is strongly encouraging company's to auto enroll employees into their retirement plans. The rationale is simple: it is in the best interest of the employee for their company to automatically enroll them, so the individual can begin putting money into the plan in order to build retirement savings. The employee has 90 days to "opt out" with no tax consequence, and can change the percentages they defer whenever the plan allows. Auto enrollment can have a direct global impact on the growth of individual retirement savings. It is a solution to one of the biggest problems with retirement plans today: employees tend to do nothing. If doing nothing means employees are participating, as opposed to never getting around to enrolling, the long term impact on these retirement accounts can be huge.
A company should not make a decision to implement auto enrollment lightly. The demographics and current participation rates need to be analyzed. The existing plan design needs to be reviewed. Perhaps an increase in employee education and awareness is all that is necessary. What is the climate of the company? Philosophy of the owners/trustees? Would this kind of action be perceived as an infringement of employee rights, akin to "big brother"? By increasing employee participation, would employer matching contributions become cost prohibitive? These questions and more need to be answered before a company takes action to auto enroll employees.
While this may be an important process to put in place, the pros and cons must be carefully reviewed with an expert to ensure auto enrollment is appropriate. An expert will help define the best solution and suggest any improvements to the plan design. Perhaps a "safe harbor" plan is better. Learn all about a safe harbor plan in my next blog.....stay tuned!