Using auto-enrollment and auto-escalation to boost outcomes

What is automatic enrollment?

Automatic enrollment is a plan feature that enrolls eligible employees in the retirement plan automatically once they become eligible, unless they opt out or choose a different contribution rate. Rather than requiring employees to actively enroll, participation becomes the default.

Example: Your company automatically enrolls new employees at a 5% contribution rate. An employee earning $60,000 would automatically contribute $3,000 per year unless they elect a different percentage or opt out.

Employees always keep control of their accounts — they can change their contribution rate, adjust investments, or opt out whenever they choose.

Why is automatic enrollment effective?

Many employees intend to enroll but simply delay getting started. Automatic enrollment helps them overcome that barrier by making participation the default. Benefits include:

• Higher participation rates
• Earlier retirement savings for employees
• Increased engagement with retirement benefits
• Improved retirement readiness across the workforce
• Greater utilization of employer matching contributions

Research has consistently shown that plans with automatic enrollment achieve significantly higher participation than plans that require employees to enroll on their own.

What is automatic escalation?

Automatic escalation gradually increases an employee's contribution rate over time — typically by 1% each year — until a predetermined maximum is reached. The goal is to help employees save more without having to remember to raise their contributions themselves.

Example: An employee begins contributing 5% of salary. With automatic escalation, that rate rises to 6% the following year, then 7% the year after, continuing until it reaches the plan's selected maximum, such as 10%. Because the increases are gradual, many employees hardly notice the change in take-home pay.

Why is automatic escalation beneficial?

Many participants enroll but never increase their contribution rate, even after a raise or promotion. Automatic escalation helps employees:

• Build retirement savings faster
• Take advantage of salary increases over time
• Reduce the likelihood of falling behind on retirement goals
• Develop better long-term saving habits

For many participants, increasing contributions by just one percentage point a year can lead to substantially larger retirement balances over a career.

Using both features together

Each feature adds value on its own, but they often produce the best results together. Automatic enrollment helps employees begin saving; automatic escalation helps those savings keep growing.

Example: A newly hired employee is automatically enrolled at 5%. Over the next five years, automatic escalation gradually raises the rate to 10%. Without taking any action, the employee has doubled their savings rate while continuing to build retirement assets.

This combination encourages consistent saving habits while still giving employees full flexibility to make changes whenever they wish.

Considerations for plan sponsors

Before implementing automatic features, evaluate how they fit within your overall plan design. Consider:

• What should the default contribution rate be?
• How much should contributions increase each year?
• What maximum contribution percentage should escalation reach?
• How will employees be notified about these features?
• Do these changes align with your retirement objectives and workforce needs?

Working with your retirement plan advisor can help you determine the approach that best supports your employees and your organization.

Measuring success

It's important to monitor results after implementing automatic enrollment and escalation. Key metrics to review include:

• Participation rates
• Average employee contribution rates
• Employer match utilization
• Opt-out rates
• Overall retirement readiness

Tracking these metrics over time helps you evaluate whether the plan design is meeting its goals and identify opportunities for improvement.

The bottom line

Automatic enrollment and automatic escalation are among the most effective plan-design features available for improving retirement outcomes. Used well, they strengthen participation and improve retirement readiness across your workforce. If you're considering whether to add automatic enrollment, automatic escalation, or another plan-design enhancement, reach out to one of our advisors today to evaluate your options.