Auto Dealers, Automatic Enrollment, and Automatic Escalation

As someone who has worked closely with automotive dealerships for over twenty years, I have witnessed first-hand that successful dealerships are extremely busy places with a lot going on throughout…every….single….day. With that being said, employees do not always have the time for benefit meetings, which can lead to missed opportunities and, with regard to retirement plans, missed 401(k) deferrals, tax deductions, employer matches, compounding, net worth, etc. 

For plans that are not Safe Harbor, low enrollment and low deferral rates also cause testing issues for highly-compensated employees (i.e. refunds). When low enrollment and average deferral rates continue to be an issue, plan sponsors may want to look into adding automatic enrollment and automatic escalation. According to Fidelity’s second quarter 2019 analysis,[1] 91% of participants who are automatically enrolled do not opt out. 91%!  The same data also shows an 88.3% participation rate for auto-enrolled plans compared with only 52.3% for non-auto-enrolled plans. In addition, a record 46% of plans are now auto-enrolling at 4% or higher, up from 27% five years ago. The Fidelity report also states that participation among Millennials has increased by 82% over the last 10 years, due in part to the employers implementing auto-enrollment.

Another key component to pair with auto-enrollment is automatic escalation. This feature automatically increases participants’ contribution amounts and, for example, can be set to increase by 1% each year and capped at 10% or higher.

The data is telling us that employees are comfortable with being auto-enrolled into plans.  This not only increases their net worth and savings, but also helps to retain quality employees. Highly-compensated employees will also be able to contribute more into the plan due to better testing results. Implementing automatic enrollment and automatic escalation can have a powerful impact on participant savings and should help both your employees and the company.  Isn’t that the goal of having an employer-sponsored retirement plan?   


[1] https://sponsor.fidelity.com/bin-public/06_PSW_Website/documents/Building_Financial_Futures_Q2_2019.pdf

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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our thoughts on

SECURE Act: Increase in Age for Required Minimum Distributions (Section 114)
SECURE Act: Expansion of Section 529 Plans (Section 302)
SECURE Act: Plan Adopted by Filing Due Date for Year May Be Treated as In Effect as of Close of Year (Section 201)
SECURE Act: Modification of Required Minimum Distribution Rules for Designated Beneficiaries (Section 401)
SECURE Act: Modification of PBGC Premiums for Cooperative and Small Employer Charity Plans (Section 206)
SECURE Act: Business Tax Credits for Retirement Plan Startup Costs and Automatic Enrollment Provisions (Sections 104 and 105)

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