Beware this one downside to automatic escalation
There’s no shortage of benefits from adding an automatic enrollment feature to your 401(k). But be aware of this one pitfall.
Getting employees to sock money away for retirement is a victory all its own. And adding features like automatic enrollment and automatic escalation can greatly further your crusade.
Since the feds green-lighted an employer’s ability to mandate these features just over a year ago, many of your peers have been fast to add them.
With good reason – check out the predicted positive impact of auto escalation on overall 401(k) accumulations:
- Between 11% and 28% for participating employees in the lowest income quartile, and
- Between 5% and 12% for participating employees in the highest income quartile.
That comes from the Employee Benefits Research Institute.
But be careful! There seems to be a real downside to automatic escalation: Employees don’t save as much as they could!
Under most auto escalation features, employee contributions increase from a starting 3% to a top out of 6%. That’s far short of the 15% allowed by law.
So employees may be shortchanging themselves on the savings. Be sure to remind folks just how much they could be setting aside for their golden years.
Free Training & Resources
White Papers
Provided by Anaplan
Webinars
Provided by Yooz
Further Reading
The Supreme Court has raised the standard on whether an employer can claim undue hardship in response to a religious accommodation request....
The Census Bureau requires businesses to complete the Economic Census to report on years ending in 2 and 7. With that in mind, watch out fo...
If someone qualifies as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA), is an exempt classification mandatory...
Interest rates for the second quarter will drop, the IRS recently announced. According to Revenue Ruling 2026-5, the rates for April, Ma...
Believe it or not, more than 80% of workers like their employers’ Paid Time Off (PTO) packages. But that doesn’t stop a surpris...
In March and April, some of your peers will receive CP2100/CP2100A notices from IRS that will require them to mail out B notices notifying ...