Automatic enrollment may hurt employee retirement savings

January 11, 2010 by Christian Schappel

Auto-enrollment in retirement plans may not contribute to employee retirement savings as much as once thought. Why?

Companies appear to reduce their 401(k) match when they adopt automatic enrollment, according to a recent study by Urban Institute.

Reason: Higher participation rates mean increased costs for employers that have to match worker contributions.

The statistical model developed by the Urban Institute reveals that match rates are 7% lower on average for employers that adopt auto-enrollment.

Has your company considered reducing its 401(k) match to adopt automatic enrollment? Let us know in the Comments Box below.

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Artie Says:
January 14th, 2010 at 4:55 pm
Agreed. With the combination of a transient employee population who would be forced to take a distribution if they did not accumulate $1000 in their account before termination and the increased costs associated with more participants – auditors for Form 5500, etc., my company is sticking to just keeping a good match – not auto enrollment.
Michaelene Says:
February 4th, 2010 at 2:22 pm
I agree with Artie, however our company has not given a match at all. This is one reason why we have such a low participation.

Automatically enrolling people in the 401k without a match is unpopular, to say the least.
Cindy Says:
February 4th, 2010 at 2:41 pm
We suspended our match but had nothing to do with auto enrollment. That was actually working out pretty well until the match was suspended “due to the economy”. We are trying to get it reinstated.

ARTie: I always thought that the point was to get MORE participants….no????
Roni Says:
September 21st, 2010 at 10:25 am
We added auto enrollment and 3.5% company match at the same time. Before auto enrollment we had NO company match.

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