Why your 401(k) needs automatic escalation

Employee who is happy because they are saving more for retirement since their employer uses automatic escalation for their 401k plan.

When it comes to the retirement benefits your organization provides, you want what’s best for your employees and for the company. That’s why adding automatic escalation to your organization’s 401(k) plan is so great—it does both.

What is 401(k) automatic escalation?

Automatic escalation is a 401(k) plan feature that automatically increases an employee’s contribution amount. For instance, you can set the feature to increase employee contributions by 1% each year up to 10% or more.

If you already have automatic enrollment it just makes sense

Automatic enrollment and automatic escalation pair nicely together. It’s possible that employees who are already participating in the 401(k) plan have adapted their budgets and enjoy seeing their retirement balance increase. But, if they’re not on their way to eventually contributing at least 10 – 15% of their salary, they may not be saving enough.1 Make it simpler for them to save more by adding automatic escalation.

  • 81% of participants keep the escalation feature when it’s automatic.2
  • Only 7% of eligible participants use an escalation feature when they have to elect it.3

Employees need your help to save for retirement

We wanted to know how employees feel about saving for retirement. So we asked. And they told us they need (and want) your help to increase retirement savings.2 They also told us they feel good about the retirement plan doing some of the work for them through features like automatic enrollment and automatic escalation.2

  • 83% of participants are okay with automatic contribution escalation.2

It’s through these features that you could provide the “nudge” your employees need to save more for their retirement. Check out the results of our survey.

For more information on automatic escalation, talk with your financial professional or third party administer if you work with one. Or give us a call. We want to help.

401(k) automatic escalation helps your employees increase their retirement savings:

1 The Cerulli Report | U.S. Evolution of the Retirement Investor 2017.

2 Principal Financial Group – Financial Wellness Survey 2017.

3 Principal, Jan. 1, 2014, through Dec. 31, 2016, enrollment suite summary.

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.

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