All Guideline plans include an IRS approved plan feature called an automatic contribution arrangement, which means your employees are automatically enrolled in the employer-sponsored Guideline 401(k) plan if they don’t elect a different contribution or opt-out by by their auto-enrollment date. The automatic enrollment feature encourages your employees to save by making a salary deferral the default, rather than waiting for the employee to request enrollment.
Advantages of automatic enrollment include:
- More employees end up contributing with auto-enrollment
- Studies show that with auto-enrolled employees save more over time
- Employers are helping their employees start preparing for retirement as soon as they are eligible
- Increases plan participation which can have a favorable impact on compliance testing
- Like all 401(k) plans, those with auto-enrollment have significant tax advantages for employers, including deductions for employer contributions (otherwise subject to tax)
Downsides of automatic enrollment include:
- If you have employer matching contributions, they may increase with automatic enrollment
- Employees can become disengaged and assume that the default rate will ensure they save enough for retirement
- Your company’s default rate could be less than what an employee would have chosen if they had enrolled themselves