What are the advantages of automatic enrollment for employers?

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 
Was this article helpful?
Have more questions? Submit a request