The Advantages of Retirement Plan Automation
Part of a series | SECURE 2.0 Act Insights
Help employees strengthen their retirement savings habits by making crucial choices automatic. Automated features can help eliminate indecision and help employees build their retirement security.
For plan sponsors looking to boost retirement plan participation, streamline processes and save time by reducing manual tasks, automated features represent a shift from hoping employees will make smart financial decisions to ensuring they do. These automated features can be powerful tools that benefit employees as well as your business, and participants can always opt out if they choose. Take a look:
Auto-enrollment
Rather than requiring employees to proactively sign up for their 401(k), auto-enrollment enrolls eligible workers automatically at a predetermined contribution rate. Thanks to the SECURE 2.0 Act, beginning January 1, 2025, every new 401(k) and 403(b) plan is required to automatically enroll new employees at an initial contribution amount between 3% and 10%, increasing each year until it reaches at least 10% but no more than 15%.
By making enrollment for eligible employees the default option, you can benefit in two ways — strengthening your retirement plan's health by improving participation rates while also cutting down on manual enrollment paperwork.
Auto-escalation
While auto-enrollment gets employees started, auto-escalation ensures they don't stay stuck at their initial contribution rate. Auto-escalation automatically increases an employee's contribution rate at regular intervals, usually 1% per year, until reaching a predetermined cap.
This feature addresses a common problem. Employees who start saving often remain at the same contribution level, despite changes like salary increases or starting a family.
Auto-escalation solves this by gradually increasing contributions in small, manageable increments that employees barely notice. Over time, these modest annual increases create a sustainable and effective wealth-building strategy.
Auto-matching
Another automation feature that's gaining traction is auto-match — when employers automatically enroll employees at a contribution level that captures the full company match. For example, rather than starting employees at a basic 3% contribution rate, auto-match sets the initial contribution percentage to whatever level maximizes the employer matching benefit available to that employee.
Auto-match enrollment requires more sophisticated plan design and communication, as contribution rates vary based on each employee's specific match opportunity. But this approach addresses one of the most frustrating aspects of retirement plan management: watching employees forfeit free money simply because they don't understand the matching formula.
Defaults that drive behavior
By offering a plan with automatic features, you're creating a path to retirement security that works for the modern workforce. Smart automation can help employees make the right choice easier while maximizing available benefits.
If your current plan doesn't offer the features you're looking for, contact an ADP retirement services specialist or call (800) 432-401K to find one better suited to your business's needs.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
Investment options are available through the applicable entity(ies) for each retirement product. Investment options in the "ADP Direct Products" are available through either ADP Broker-Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or (in the case of certain investments) ADP, Inc.
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