T. Rowe Price just released a study that show that 401(k) plans with an automatic enrollment feature have a 40% increase of participation by participants in salary deferrals than those plans that don’t offer automatic enrollment. Thanks to T. Rowe Price for stating the obvious, plan participants are likely to participate more when they are kind of pushed to participate (by requiring them to affirmatively decline to avoid automatic enrollment).
If you’re a plan provider and your pay is dictated on plan assets, I think automatic enrollment is a no brainer because it will essentially grow your business because it will grow the assets of your 401(k) plans under management. More than 50% of 401(k) plans now offer automatic enrollment.
Aside from just increasing assets, I believe automatic enrollment is an effective tool in order to sway plan participants that are automatically enrolled to eventually decide to defer on their own. If you have good marketing materials and can appeal through education to get participants to voluntarily contribute, you’ve done your job.
Not only will you get rewarded through automatic enrollment, an effective program in getting those automatically enrolled to defer on their own is all the evidence you need to show clients and potential clients how well you serve in your role as a plan provider.
