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Tags: Retirement | auto enrollment | retirement | plans

Advantages Of Auto Enrollment Retirement Plans

By    |   Friday, 21 August 2015 01:28 PM

Auto enrollment retirement plans, also known as automatic contribution plans, make it easier for employees to save for the future. The employer arranges the plan for eligible employees to deduct a certain amount of their wages, which are contributed to the plan.

Employees may choose to have a percentage deducted from their pay, according to the plan, or select to contribute a different amount automatically. The employee owns the contributions as a retirement plan.

Auto enrollment contributions are often used for 401(k) retirement plans, but are also used for SIMPLE IRA plans, SARSEPs, 403(b) plans, and 457(b) plans for government workers, according to the IRS.

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The plans usually deduct amounts from pre-tax wages so the contributions are not taxed until withdrawn during retirement. The 401(k) and 403(b) plans include options for after-tax deductions with Roth IRA accounts, which are not taxed when withdrawn during retirement.

Employees benefit from an automatic contribution plan because it’s an incentive to save for retirement. Many workers find they begin saving earlier for retirement through automatic enrollment, wrote David C. John, a senior strategic policy adviser at AARP Public Policy Institute, in Retirement Made Simpler.

Eligible workers are given a choice to participate in the plans or opt out. However, offering the plans encourages many employees to start contributing to a retirement plan. Participation dramatically increases among younger workers, moderate-income workers and other people who are usually less likely to save for retirement, according to John.

The company benefits because all employees, regardless of income, are allowed to participate, which plays a role in helping the morale of the business. This is also enhanced when employers include provisions that match the contributions of employees for the retirement plans. Employers also have flexibility. They can reduce matching funds when the business cycle takes a downturn, but increase the matching funds as a reward to employees when business improves.

Employees can take advantage of long-term investment strategies offered through many auto enrollment retirement plans, The Wall Street Journal pointed out. An option may include target-date funds. These funds focus more on stocks for younger employees to increase the value of their investments with some risk, but switch to more conservative and secure investments as the workers reach retirement age.

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Auto enrollment retirement plans, also known as automatic contribution plans, make it easier for employees to save for the future.
auto enrollment, retirement, plans
Friday, 21 August 2015 01:28 PM
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