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To drive plan participation, 69% of companies use an auto-enroll feature with their 401(k)s. This essentially allows the employer to enroll eligible employees unless they affirmatively elect not to participate. It can be a great way to increase participation in your company’s retirement plan. However, there are pitfalls to avoid.
In some situations, employees’ wages would be reduced by the plan’s default contribution percentage, sometimes as low as 2% or 3%. A potential issue is that the default deferral rates could cause employees to contribute less than they would if they actively signed up for a plan on their own. That’s because many employees who are auto-enrolled leave their savings rate at the low initial percentage. Over time, that means less for workers’ total retirement savings.