Here’s the straight talk: smaller employers—those with under roughly $50 million in plan assets—are getting left behind when it comes to automatic enrollment in workplace retirement plans. And as long as that gap persists, too many workers will continue missing the retirement train altogether.
What the Numbers Show
Only about 24 percent of small plans had adopted auto-enrollment by the end of 2024, compared to 61 percent of large plans. Among those that did adopt it, 57 percent included auto-escalation, while 69 percent of large plans did the same. In small plans with voluntary enrollment, participation hovered around 52 percent; in those with auto-enrollment, it jumped to 82 percent.
Employees in small-business plans also tend to earn less—about $59,000 in median income compared to $89,000 in larger companies. Lower income correlates with lower savings rates, making automatic plan features all the more critical for leveling the playing field.
What It Means (and Why I Care)
If you’re a small-plan sponsor reading this, let’s call it like it is: failing to include an auto-enrollment feature isn’t just a missed opportunity—it’s a strategic misstep. Smaller companies already face limited HR resources, less formal plan education, and tighter budgets. Those factors make it harder to get employees to sign up voluntarily. Auto-enrollment fixes that.
From a fiduciary standpoint, this also raises questions. If you know that auto-enrollment dramatically increases participation—and the data proves it—then why wouldn’t you adopt it? At some point, ignoring that evidence might not just look negligent; it might be negligent.
Why This Matters to the 401(k) Industry
The lag in adoption among small businesses highlights a fundamental inequality in the 401(k) system. Large employers benefit from economies of scale, recordkeeping sophistication, and consultants who push best practices. Small employers often rely on bundled providers or local advisors who don’t emphasize behavioral plan design. That’s not an excuse—it’s a challenge.
The SECURE 2.0 Act and future legislation are already nudging auto-enrollment toward the default standard. The question isn’t if small employers will need to catch up—it’s when.
Lessons for Plan Sponsors
1. Adopt auto-enrollment now — before regulators or market competition force your hand.
2. Add auto-escalation — small increases over time make a huge difference in long-term balances.
3. Review your match structure — use incentives that reward continued participation.
4. Educate and communicate — even automatic features need explanation to build trust.
5. Measure outcomes — track participation and deferral rates so you can prove the design works.
Final Word
Auto-enrollment isn’t a luxury anymore—it’s table stakes. For small-plan sponsors, it’s the single most effective way to boost participation and improve outcomes without spending a dime more on education campaigns or incentives.
As I often tell clients: if you want to help your employees retire with dignity, stop making them opt in—make them opt out. That one design change can turn a struggling plan into a successful one.
