How do you ensure maximum participation in your company’s workplace emergency savings program? One crucial decision is whether to implement auto enrollment instead of an opt-in option when possible.
But how do you determine what’s right for your employees? There are a number of factors to consider regarding auto enrollment in workplace emergency savings programs.
Auto enrollment, a concept that was first popularized in retirement savings, involves automatically enrolling employees in a savings program. That means that when an employee becomes eligible to participate in your company retirement plan, they are automatically enrolled and signed up for specific contributions that would go into the emergency savings account (ESA) from each paycheck — unless the employee opts out.
In other words, employees who are eligible and don’t explicitly opt out of plan participation will have a default percentage of their salary contributed to their plan from each paycheck.
For out-of-plan ESAs, auto enrollment is more of a theoretical exercise. With a makeshift banner of laws across various states, auto enrollment isn't feasible without federal guidance. Some ESAs providers and employers are advocating for Congress to pass legislation regarding auto enrollment for out-of-plan ESAs.
However, this strategy is supported by the SECURE 2.0 Act only for in-plan ESAs or PLESAs. As of 2024, the act allows employers to automatically opt employees into an in-plan emergency savings account at a rate of up to 3% of eligible pre-tax wages (essentially, an emergency fund within a defined contribution retirement savings plan like a 401(k) or 403(b)).
The main advantage of PLESA auto enrollment is its ability to boost employee engagement in savings programs. Additional benefits include:
While auto enrollment is a relatively new strategy in the workplace emergency savings space, the same strategy for retirement savings has yielded positive outcomes for many individuals. According to a poll from Principal Financial Group, an overwhelming majority (80%) of employees who were automatically enrolled in their workplace retirement plan reported starting to save for retirement sooner than if they had opted in on their own, and increasing their savings rates (65%).
In the emergency savings context, starting to save earlier can lead to higher savings levels and increased financial security among employees over time.
Nevertheless, auto enrollment raises certain challenges.
Auto enrollment is associated with several challenges, including:
Additional challenges that may arise for some organizations include increased administrative burden and ongoing management, potential legal and compliance issues relating to state laws, and possible negative impacts on low-income workers.
Given these potential challenges, it’s essential to be transparent and implement clear communication strategies to help mitigate misunderstandings and encourage employee engagement and acceptance of the program.
Understanding employee perspectives is vital. Before implementing an auto-enrollment strategy when setting up a PLESA, field input from your current employees. Gaining the buy-in of eligible employees will be critical in ensuring the success of this approach
If we consider the state of emergency savings among Americans in general, there’s a clear need for more savings—with only 19% of respondents in our recent SecureSave survey counting at least six months’ worth of emergency savings in their account, and 27% with three months’ of savings. Moreover, there’s a notable demand for employer-sponsored emergency savings. Research from the Bipartisan Policy Institute found that 42% of Americans want to be automatically enrolled in a workplace emergency savings program, and another 14% may be open to the idea.
The same SecureSave survey also indicated that 90% of employees are interested in such a program, and we can see that this offering is incredibly favorable among American workers. Still, every workforce is different, so make sure to consider whether the auto-enroll option aligns with your employees’ needs.
It’s important to be informed about regulations around auto enrollment in savings programs. While regulations in the U.S. may vary by state, they typically cover factors including:
When in doubt, consult with a legal professional for help navigating regulations.
While auto enrollment in an ESA offers various advantages, it’s important to consider alternatives, especially if you're implementing an out-of-plan ESA and auto enrollment isn't currently possible. Popular emergency savings strategies include:
In addition, financial literacy initiatives and other financial wellness resources are always a good idea.
Once you’re ready to move forward with ESA auto enrollment for a PLESA, effective implementation requires careful planning. Here are four key elements for successful implementation:
The goal here is to ensure that employees fully understand the program, its benefits, and their rights, including how to opt out or change contribution levels. Accomplish this by developing a comprehensive communication plan that includes:
Make sure to regularly update employees about the program and provide resources for further questions.
By making the enrollment and opt-out processes as easy as possible, you’ll help encourage participation while also respecting employee autonomy. Make sure to:
It’s important to allow employees to tailor their contribution levels to fit their financial situations, which can help enhance satisfaction and participation. Accomplish this by:
Fostering the overarching financial wellness of your employees means supporting them in making informed financial decisions and understanding the value of emergency savings. Consider offering:
Make sure to regularly update and refresh these educational resources.
Auto enrollment in in-plan workplace emergency savings programs presents several benefits along with some challenges. It’s important to carefully assess your specific workforce and organizational needs before moving forward with an auto-enrollment strategy.