Automation of the 401k Plan in 2019

 In 401(k), Automation

401(k) Automation in 2019

When it comes to revolutionizing 401k plans in 2019, automation is one of the main topics of conversation, whether it’s automatic enrollment, automated robo-advisors, or automated rollovers.  Everyone is focusing on making 401(k) plans easier to understand and making it simpler to save for retirement by offering “the path of least resistance.”

Automatic Enrollment

In some company-sponsored 401(k) plans, employees must opt-in, or choose to be a part of the plan. In others, all employees are automatically enrolled, but have the choice to opt out if they do not want to contribute to their 401(k) through that company.  Companies that employ automatic enrollment typically have higher enrollment and contribution rates because the automation makes it as easy as possible for employees to take part.

Automatic enrollment is not a new concept. In fact, it has been a topic for years. However, recently we’ve seen data that proves that automatic enrollment works.  Although employees subject to automatic enrollment can opt out of the 401(k) plan at any time, few choose to do so.  Vanguard statistics show that for plans offering automatic enrollment, an average of 90% of eligible employees join.  That figure plunges to 63% in 401(k) plans without automatic enrollment.

Interestingly, enrollment rates in company-sponsored 401(k) plans with automatic enrollment are even higher for younger employees.

Automated Rollovers

Automated Rollovers are a more recent trend in the 401(k) industry.  One of the most prominent reasons for this is that switching jobs, even within the same industry, has become commonplace –   even though transferring your 401k has traditionally been a hassle.  The Department of Labor is considering allowing companies like Retirement Clearinghouse LLC to run programs that automatically transfer small 401(k) balances into individual retirement accounts when employees leave a job.  Then, when they start a new job, RCH, or the like would automatically transfer the savings into the new employer’s 401(k) plan.

 

Located in Denver, Colorado with a satellite office in Metairie, LA, LT Trust is a low-cost 401(k), open architecture 401(k) recordkeeper that helps financial advisors and plan sponsors to achieve retirement readiness. With a focus on small business 401(k)s, LT Trust is on a mission to provide cost-efficient retirement plans without compromising quality or customer service.

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