Nine years have passed since the Pension Protection Act of 2006 virtually blessed automatic enrollment for defined contribution plans and almost 15 since we at 401(k) Advisors began advocating the same.
Has automatic enrollment turned out to be the panacea intended?
In 2007, 401(k) Advisors worked with a financial services center whose plan participation languished below 50%. Since the client had multiple branch offices of minimum wage-earning employees for whom English was a second language, it was difficult to meet effectively with everyone to encourage participation. As a result, the plan decided to add automatic enrollment with a default deferral at 1% into a target date fund. Participation, which started at 49% in 2007, ballooned to a whopping 84% just one year later. The plan fiduciaries were so encouraged by the success, they subsequently increased the default rate to 3% and included a sweep of all current employees contributing below the 3% threshold. Participation today holds steady at a proud 86%. In addition, the plan’s former nondiscrimination testing woes have all but disappeared as the plan passed its nondiscrimination test each of the last four consecutive years.
Automatic enrollment works. A plan fiduciary committed to increasing plan participation and passing the nondiscrimination testing will adopt automatic features. Contact your plan consultant to discuss how these important design features will enhance your plan.
~ Susann Haas, Senior Plan Consultant
About the Author, Susann Haas
Susann Haas joined the 401(k) Advisors Plan Consultant team with 20 years’ experience in working with qualified plans. With the firm since 2001, Susann provides ongoing service to clients and counsels them on developing and maintaining effective due diligence practices, meeting their fiduciary requirements and consulting on plan design and compliance issues. Prior to joining 401(k) Advisors, Susann served as an account manager with Transamerica servicing the Orange County and San Diego areas. Previous to working at Transamerica, Susann spent her time at CNA Trust as a pension administrator where she was responsible for all the compliance work and administration for a caseload of defined contribution plans. She also spent time at Western Growers in a similar capacity with more focus on plan design consulting and compliance work. Susann is an Investment Advisor Representative and holds her Series 6, 63, and 65 licenses.