Auto Enrollment

Automatic enrollment is a strategy by which eligible employees are automatically enrolled in a defined contribution plan at a given contribution rate, with the right to opt out of the arrangement at any time.

In a typical 401(k) or 403(b) plan, employees must make an active choice to join the plan. The enrollment decision is framed as a positive election: “Decide if you’d like to join the plan.”

Why do employees fail to take advantage of their employers’ plans? Research in the field of behavioral finance provides a number of explanations:

  • Lack of planning skills. Some employees are not active, motivated decision-makers when it comes to retirement planning. They have weak planning skills and find it difficult to defer gratification.
  • Default decisions. Faced with a complex choice and unsure what to do, many individuals often take the default or “no decision” choice. In the case of a voluntary savings plan, which requires that a participant take action in order to sign up, the “no decision” choice is a decision not to contribute to the plan.
  • Inertia and procrastination. Many individuals deal with a difficult choice by deferring it to another day. Eligible nonparticipants, unsure of what to do, decide to postpone their decision. While many employees know they are not saving enough and express an interest in saving more, they simply never get around to joining the plan or, if they do join, to increasing their contribution rates over time.

Automatic enrollment re-frames the savings decision. With auto enroll, the decision to save is framed negatively: “Quit the plan if you like.” In such a design, “doing nothing” leads to participation in the plan.

However, Auto Enrollment alone only solves one of the three behavior gaps preventing employees from securing their retirement.  In order for it to be as effective as possible, it needs to be paired with Auto Increase and Auto Invest.


This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.


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