Automatic Enrollment 2.0

Jul 23, 2020

When employers began automatically enrolling employees into retirement plans, it was a retirement savings game changer. Plans that automatically enroll have seen upwards of 90% employee participation, compared with only 50% participation for plans with voluntary enrollment.

Given automatic enrollment’s success in boosting retirement accounts, how can this effective tool be improved? Enter S.1431 – Retirement Security and Savings Act of 2019, championed by Senators Rob Portman (R-OH) and Ben Cardin (D-MD). Their bill will take this feature to a whole new level by establishing a new incentive for employers to offer a more generous automatic enrollment plan and receive a safe harbor from costly retirement plan rules.

The Pension Protection Act of 2006 authorized employers to add auto enrollment to a variety of retirement plans, including 401(k), 403(b), governmental 457(b), SARSEP and SIMPLE IRA plans. Employers deduct a percentage of each eligible employee’s paycheck and deposit it into the employee’s retirement account. Employees can opt out or change the amount they want deducted.

Close to 50% of all employers utilize automatic enrollment, an increase from 20% in 2008.

The Portman-Cardin legislation, introduced in late 2019, should boost employer participation further. It will provide employers with a tax credit for offering autoenrollment starting at a 6% savings level, up from 3% under current law. Employers will be able to automatically escalate yearly the savings rate up to 10%. 

Increasing the amount that employees can initially start saving and coupling that with the power of auto-escalation creates an environment where workers are able to save more, faster. As market fluctuations related to COVID-19 have ravaged many Americans’ retirement accounts, these features in the Portman-Cardin legislation will be key tools to help workers recoup some of their lost savings and ensure a secure retirement.

Kathleen Coulombe

Kathleen Coulombe serves as the Vice President, Retirement Security and Principal Deputy, Federal Relations for the American Council of Life Insurers (ACLI). In this capacity, she is actively involved in retirement security public policy issues on Capitol Hill that impact the life insurance industry.