Seven Misconceptions About Auto Features

By Fred Barstein • May 20, 2014 • 0 Comments

With the growth of auto-plan features, plan sponsors are subject to many misconceptions and fears that prevent them from doing the right thing for their employees. Missouri-based Pension Consultants Inc. identifies the seven biggest misconceptions about auto features, and provides solid answers that plan advisors can use with reluctant clients:

  • Paternalism — 98 percent of auto-enrolled employees were happy with the service; even 79% of those who opted out thought it was a good thing.
  • Match expense — Most highly-compensated employees are already in, and the expense is minimal at the start since account balances are still small.
  • Employees won’t take responsibility — Helping employees get started helps them see the value of their retirement plan.
  • Extra work and expense do not help the company — Auto features limit turnover and help with discrimination testing.
  • Administrative nightmare — It’s actually easier to auto-enroll everyone uniformly rather than individually.
  • QDIA increases fiduciary liability — Increased risk of fiduciary liability was a legitimate concern in the past, but not since the Pension Protection Act of 2006 (PPA) was enacted. PPA says participants “will be deemed to have exercised control over assets in his or her account if, in the absence of investment directions from the participant, the plan invests in a qualified default investment alternative.”
  • Automatic enrollment impact on employees is limited — Automatic features can improve employee satisfaction, and can make it easier to retain highly paid key executives by ensuring they can take full advantage of their retirement contributions.
Fred Barstein is the Portal Conductor of the NAPA Service Providers Station.  He is also NAPA Net’s Editor in Chief.