Are you concerned with 401k participation?  Concerned your plan might not pass the IRS discrimination test?   It might be time to reconsider automatic enrollment for your employees.  Studies by the U.S. Bureau of Labor Statistics and Vanguard found that automatic enrollment has a dramatic affect on participation rates amongst lower income employees.  A study of 2010 401k plans by Aon Hewitt found that plans with automatic enrollment had an 85.3% participation rate, 18 percentage points higher than those plans without automatic enrollment.

Automatic enrollment requires all employees to fill out a form to opt out if they do not wish to participate.  Studies have found that one of the biggest obstacles to greater plan participation is the paperwork necessary when a plan does not have auto enrollment.  Employees just never take the time to fill out the paperwork.

You already have automatic enrollment? Great!  Consider the default contribution levels of auto enrollment as well.  The default contribution levels for most plans with auto enrollment are typically low, around 3% or less. These savings levels aren’t enough for a secure retirement.  The Aon Hewitt study found that only about 18% of participants are on track to save enough for their retirement.  The Vanguard study found that overall contribution rates within the plan fall because the default rate of automatic enrollment is a lower contribution rate than that which an employee would choose if they had voluntarily contributed.   You might consider setting automatic contribution levels to take full advantage if any company match is offered and consider implementing a contribution escalation policy within your 401k plan on top of your automatic enrollment.

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