At Guideline, we believe in the power of retirement planning. But we also know contributing to a 401(k) can seem intimidating. So much so that many employees don’t contribute to an available retirement account simply because they don’t know where to begin.
Automatic enrollment can take indecisiveness and procrastination out of the picture and provide a seamless path to retirement savings.
How auto-enrollment works
Rather than wait for employees to opt in, plans with an auto-enrollment feature will set a default deferral rate. Once the plan starts, all eligible employees will automatically have that set percentage pulled from their paychecks and placed into their 401(k) accounts.
Some accounts may also have an auto-escalation feature, which will increase the default deferral rate without employee action each year, up to a certain amount.
The benefits of automatic enrollment
Studies show more participants will save with automatic enrollment. In fact, 90% of eligible employees participate in auto-enrollment plans, whereas only 57% participate when a plan doesn’t offer automatic enrollment.
Participants may save more when they are automatically enrolled at the default rate, especially if auto-escalations are triggered for certain years.
Auto-enrollment helps employees take advantage of any employer matching dollars to grow account balances faster.
All auto-enrollment contributions and gains have tax deferral treatment until distribution.
Automatic enrollment with Guideline
All Guideline 401(k) plans include an auto-enrollment feature. Therefore, typically within 30 days before the plan start date or when an employee becomes eligible, they will receive an email notification with their enrollment date.
Any employees who do not wish to contribute can choose to opt out before or any time after the auto-enrollment deadline. They can also change their deferrals to a lower or higher percentage based on their preferences and goals.
If an employee doesn’t take action by the deadline, then their paycheck contributions will be invested into one of Guideline’s professionally managed portfolios based on their current age and estimated time until retirement. Employees can always change their investment portfolio by logging into their Guideline dashboard and accessing the Portfolio tab from the top menu.