Public Policy Proposal: Expanding Automatic Enrollment to Help Close the Retirement Savings Gap

Proposal

Impact

Rationale

Remove the Grandfather Rule that exempts 401(k) and 403(b) plans set up before December 29, 2022, from the requirement to include automatic enrollment

Eliminating the exemption could enable 15 million more Americans to participate in retirement savings plans.

• Boosts participation in plans that may be unlikely to voluntarily include automatic enrollment

• Ensures consistent early participation for all workers, including young and lower-income employees

• Streamlines employer decisions and mitigates risk of misapplying the grandfather rule

Increase the minimum initial deferral rate from 3% to 6%

A 3% contribution rate often leads to gaps in retirement savings, while higher rates greatly reduce the likelihood of outliving assets.

• Ensures receipt of full employer matching contribution amounts

• Federal TSP deferral rate increases from 3% to 5% have been beneficial – more participants now contribute at higher rates and few choose to opt-out

Discontinue the ACA option

ACA, EACA, and QACA options have nine requirements that may overlap; removing ACA reduces administrative complexity for employers and regulators.

• The ACAs unique features do not provide substantial benefits to merit the level of compleixty they create,administration can be streamlined by retaining only the EACA and QACA options

• ACA usage is declining sharply following SECURE 2.0

Align operational features for EACAs and QACAs

401(k) plan documents have an average of 9.5 automatic enrollment elections. Simplifying these would reduce complexity for employers and regulatory agencies.

• Choices create operational differences that cause avoidable plan errors which require correction

• Choices add complexity but offer no significant value to employers or participants

Require SIMPLE Plans to include automatic enrollment

Extending automatic enrollment to SIMPLE plans could expand retirement savings participation to include an additional 419,000 Americans.

• Boosts participation in plans unlikely to voluntarily include automatic enrollment

• Ensures more employees receive maximum employer matching contributions

• Adding automatic enrollment does not increase employer disclosure burdens

Provide an enhanced automatic enrollment tax credit of up to $1,000 per year for a five-year-period to small employers with 100 or fewer employees

Plans with 100 or fewer participants make up about 88% of all plans—and an enhanced tax credit provides an incentive for offering automatic enrollment.

• Helps small employers manage their costs, which are higher than expenses for large plans

• Offers a pathway for a small plan to build assets and reduce fees so that their costs become more comparable to large employers