How to increase 401(k) participation with an automatic enrollment sweep
If it’s been several years since you’ve seen an increase in your organization’s 401(k) participation rates, it may be time to consider a 401(k) automatic enrollment sweep.
What is a 401k automatic enrollment sweep?
An enrollment sweep automatically enrolls (or sweeps) all eligible employees—not just new hires—into the company’s 401(k) plan. It also increases deferrals for some participants. Let’s say you set the automatic enrollment contribution to 6% of eligible pay. A sweep does two things:
- Brings eligible nonparticipants into the plan at a 6% deferral of their eligible pay.
- Brings current participants’ deferrals to 6% of their eligible pay, if they were contributing less.
A sweep can occur annually (some employers incorporate a sweep in their annual enrollment period) or be a one-time event. During the sweep, you give employees the choice to opt out of the 401(k) plan instead of requiring that they opt in. It’s a way to approach 401(k) enrollment using what we know about human behavior, and it’s backed up by science.
Employees may know they need to save for retirement, but inertia keeps them from doing so. By creating a behavior “nudge” with automatic enrollment, you could help them save more over time.
- 88% of employers report 10% or less of their participants opted out of the plan that were automatically enrolled.1
Communication is key for a 401(k) automatic enrollment sweep
If you’re worried about employee pushback—don’t be. Employers who’ve implemented an automatic enrollment feature say employee resistance is overblown and much less than anticipated.1
It’s important to communicate about automatic enrollment early and often using easy to understand language. Stay away from industry jargon and keep it simple. You want to keep the employee's needs at the center of the communication.
If these stories have motivated you to make some changes to your organization’s retirement plan, talk with your financial professional or third party administrator, if you work with one. Or give us a call. We want to help. If you have a retirement account call us at 877-475-3436.
1 PSCA 62nd Annual Survey of Profit Sharing and 401(k) Plans, December 2019.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, Iowa 50392.
Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.