401(k) automatic enrollment

ERISAmaven · February 2007

I've heard and read alot about the pros of automatic enrollment. Bt are there any negatives?

gahr · February 2007

I have involved in a plan that utilized auto enrollment, but I had done some preliminary research in a prior organization. One con is the investment direction and fiducuary responsibility; i.e. age-based "target retirement" funds vs. money market/bond funds. Your recordkeeper should be able to provide some additional informaiton. They should likley be involved in the decsion so as to understand their capabilities.

ERISAmaven · February 2007

The thing that I'm worried about is how to get employees to move out of default contributions and investments.

gahr · February 2007

Another case of "lead a horse to water".... I think if you utilize your record keeper to place newly eligible participants in age appropriate funds and then provide verifiable documentation of efforts to satisfy 401c, I would suspect that you would be relatively "safe". I believe that there have been case studies that have verified that this approach is better than that of a MM fund as the default.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

kyliefan · February 2007

I've also found that most of the news regarding automatic enrollment has been positive, but keeping in mind that you are asking if there has been any "negative" news out there , here's one item I found on BLR's Compensation site at http://compensation.blr.com/display.cfm/id/155357

Basically, it's about a study that concludes that "automatic enrollment boosts participation rates in 401(k) plans significantly, but the quality of participation among automatically enrolled employee is lower than that of employees who contributed through traditional enrollment." It's from November 2006. Employees under automatic enrollment contributed less than those who were traditionally enrolled.

Kibitzer · February 2007

In other words, newly eligible employees should be placed in a default fund based on their age. I can see how this cna work, at least for a start. If they don't change funds as they get older, should they be automatically moved? And how do you get them to increase their contributions and take care of their own investments without spending a fortune on communication programs and one on one counseling.

401(k) automatic enrollment

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