More employers have adopted 'automatic escalation,' which raises workers' 401(k) plan savings rate over time.
The mechanism automatically raises workers' savings rate over time.in their company 401 plans, in a bid to overcome the inertia that often keeps us from building a nest egg.It automatically raises workers' savings rate each year, often by 1 percentage point at a time up to a cap. The intent is to help boost savings when workers"I have a bet they don't realize it," said Ellen Lander, founder of Renaissance Benefit Advisors Group, based in Pearl River, New York.
About 64% of companies with a 401 plan automatically enrolled workers in 2022, according to an annual survey by the Plan Sponsor Council of America, a trade group. Raising the savings rate to 7% brings annual savings to $5,250, or $218.75 per pay cycle — amounting to just $31.25 more per paycheck.Employees can opt out of the arrangement. Employers are also obligated to send a notice to workers communicating that they are being automatically enrolled into a 401 and their savings rate will be increased, but such communiques may go unnoticed.
Among 401 plans that use automatic enrollment, just 40% automatically escalate savings for all workers, according to PSCA data. About 12% do so only for investors who are "under-contributing"; 26% make escalation a voluntary choice for workers and 22% don't offer it at all.
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