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Yes, I'm an auto-fan.

Yes, I'm an auto-fan.

| May 03, 2024

I reviewed JP Morgan's 2013 and 2023 Plan Sponsor Research on auto-enrollment and auto-escalation with quite a bit of interest. Both areas showed significant jumps in usage between 2013 and 2023. I am a fan.

Automatic enrollment simply states that if a new employee does nothing, they will be enrolled in the retirement plan at a certain contribution rate after so many days. They have the right to opt out. The research shows a 21% increase in the adoption of auto-enrollment.

I think back to when I advised a fast-growing tech company. They were hiring people as fast as they could and yes, auto-enrollment made it easier on the HR department and benefited the employees. New employees were usually busy by the time they become eligible for the plan and auto-enrollment took the enrollment work off their desks. HR was able to save time by not having to chase employees down for enrollment forms.

I cannot stress the ability to opt out. Employees may opt out at any time or set their contribution rates lower or higher. No one is being dictated to. And as we know, starting early with savings can really add up by the time a person retires.

Auto-escalation is a further step in the auto-escalation arena. If an employee is auto-enrolled at 2% in the first year they are eligible for the retirement plan, said employee's contribution rate would increase the next year (ie, 3%). Employees may opt out of this as well. The JP Morgan research shows a 105% increase in usage between 2013 and 20223 (21% to 43%).

I often explain auto-escalation as a natural follow-on for an employee receiving a raise. As an employee's salary goes up, it is possible they can afford to save more. Employees may opt out of auto-escalation. They can opt out of auto-enrollment.

What I stress to each employee is that in 34 years in the industry, no one has ever said to me, "Timothy, I have too much money". Sadly, I have heard the opposite. "I don't have enough. I have to keep working". What I would like to hear is, "I want to keep working. I enjoy what I do."

I am happy to chat with you about your specific plan and whether these futures might help.