Automatic enrollment increases 401(k) plan participation: Analysis

Adding an automatic enrollment feature to 401(k) plans can have a significant impact on plan participation, according to a new analysis.

On average, 82% of employees participate in 401(k) plans that have an automatic enrollment feature compared with an average participation rate of 55% for plans without the feature, according to the Fidelity Investments analysis.

The difference in plan participation rates is especially striking among younger employees. The average participation rate among eligible employees ages 20 to 24 is 76% in plans with automatic enrollment, compared with 20% in plans without automatic enrollment.

At the same time, more employers are embracing automatic enrollment. This year, 21% of 401(k) plans that Boston-based Fidelity administers offer automatic enrollment, up from just 2% five years ago according to the Fidelity analysis, which is based on plans its administers for about 11.7 million participants. Among the largest plans—those with at least 50,000 participants—63% offer automatic enrollment, up from 12.5% in 2006.

Under such programs, employees who don’t choose one way or another are automatically enrolled unless they specifically object.

Automatic enrollment was given a big boost in 2006 when Congress passed legislation removing certain roadblocks that discouraged employers from offering the feature, while later Labor Department rules gave employers offering automatic enrollment programs protection from fiduciary liability if they met certain requirements.