Employers are becoming increasingly concerned about the financial well-being of their employees, and they are expanding how they demonstrate their loyalty. Employers large and small are offering programs such as robust health insurance plans, on-site daycare, after school care, flexible work hours, Health Savings Accounts (HSA’s), and the ability to work remotely. Some companies also provide on-site amenities such as workout facilities and yoga classes while others reimburse health club dues, and employ nutritionists and personal trainers.
As it relates to financial wellness, employers are also taking an active role to help employees reach their long-term financial goals. In 2016, according to the National Compensation Survey conducted by the Bureau of Labor Statistics, the percentage of private-sector workers who had access to a defined contribution plan such as a 401(k) or a defined benefit pension plan was 66%.
In addition to simply offering a defined contribution retirement plan, employers are embracing the ability to automatically enroll workers in their 401(k) plans. This is known as automatic enrollment, or automatic contribution arrangement. This allows for eligible employees in 401(k), 403(b) and 457(b) plans, SARSEPs and Simple IRA plans to have a percentage of their wages automatically directed into their company’s retirement plan without the participant’s explicit authorization. Unless a participant opts out, the Company will continue to redirect a portion of an employee’s paycheck into their retirement savings account. Of course, all of an employee’s contributions are immediately and fully vested which means the plan participant has full rights to their contribution at all times. This is important because workers can be skeptical when their hard earned money doesn’t arrive into their paycheck; knowing they have immediate vesting can help participation rates.
First introduced by The Pension Protection Act of 2006, the concept of automatically redirecting money from a worker’s paycheck and setting it aside for retirement was slow to develop. However, by 2014, several industry surveys reported that over 50% percent of companies offering 401(k) plans offered automatic enrollment, and this feature has led to higher participation rates.
Another feature that complements automatic enrollment is automatic escalation. Automatic escalation refers to the automatic increase in salary deferral contributions that participants make into their defined benefit plans such as a 401(k) plan. While this has become more popular, according to a 2016 report issued by Northern Trust, only 32% of plans utilized automatic escalation. This is unfortunate since combining both auto features leads to better results for workers.