Auto Enrollment - Not for Everyone
Automatic Enrollment
Automatic Enrollment is the go-to solution for a society that tends to have a “do-it-for-me” attitude, but let’s be honest, from a business point of view, if there is a company match, this can be expensive and administratively difficult if you have significant turnover for a segment of your workforce. For these situations, consider implementing automatic enrollment for a just a certain group of employees, maybe an employee segment that has a longer term of tenure and would especially benefit from the benefits of a retirement plan.
Here are some examples of when this may make sense for a business:
Manufacturing/Retail:
A manufacturing company with both factories and retail stores with longer-term managers, but most employees are either seasonal or work while in school. These companies could choose to implement automatic enrollment just for managers, allowing them to benefit from a company match and not racking up a bunch of participant accounts while keeping a short or immediate service requirement.
Colleges/Universities:
For colleges or universities, you could decide to implement automatic enrollment and exclude professors, especially adjunct professors who technically are still employed with the organization even though they may not work for months at a time or earn hours toward the plan. This structure will strive to help and reward the administrative staff who tends to have a longer term of employment.
When considering implementing automatic enrollment for an employee segment, consider the following:
Discrimination Rules: There are no specific regulations regarding discrimination using selective automatic enrollment, but as a general rule, exclude highly compensated employees
Different Automatic Enroll Rates: You can also consider the possibility of having multiple selective automatic enrollment groups at different rates (i.e. Group 1 at 6% and Group 2 at 3%). Your payroll system may not be able to accommodate this idea and honestly, this approach seems to beg for administrative mistakes that could cost the company for corrections and subsequent excise taxes.
Automatic Enrollment, arguably the most used buzzword in the retirement industry, is not for every company, but keep in mind that you can use selective automatic enrollment as a tool to reinforce the company philosophy without breaking the bank in match and still helping your employees that “drive the bus” to save for their future.