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 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. Science backs the use of automatic features to help retirement savers (PDF).
Employees know they may 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.
- Only 10% of participants opt out of automatic enrollment.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 say employee resistance is overblown and much less than anticipated.1
It’s important to communicate early and often using easy to understand language. Stay away from industry jargon and keep it simple. You want to keep the employee and his or her needs at the center of the communication.
For more information on an automatic enrollment sweep, talk with your financial professional or third party administer if you work with one. Or give us a call. We want to help.
1 The Cerulli Report | U.S. Evolution of the Retirement Investor 2017.
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