Learn more about automatic enrollment in your company's retirement plan

Because the number of Americans covered by traditional pension plans has been dwindling for a while, the Pension Protection Act of 2006 allowed for companies to automatically enroll employees in defined-contributions plans such as 401(k)s and 403(b)s. There are different types of automatic enrollment in 401(k)s and 403(b)s, and rules that govern each type. There are also several benefits to you as an employee. Here’s a rundown:

Types of automatic enrollment1

Automatic Contribution Arrangement (ACA)

  • Employees are automatically enrolled into the plan unless they elect otherwise. The plan document specifies the percentage of compensation that will be automatically contributed.
  • Employees can choose not to contribute (opt out) or to contribute a different percentage of pay.

Eligible automatic contribution arrangement (EACA)

  • Your employer’s plan uniformly applies the plan's default deferral percentage to all employees after giving you the required notice. 
  • Employees may be allowed to withdraw automatic contributions, including earnings, within 90 days of the date of the first automatic contribution.
  • Employees can choose not to contribute (opt out) or to contribute a different percentage of pay.

Qualified automatic contribution arrangement (QACA)

  • Your employer's plan uniformly applies the plan's default deferral percentage to all employees after giving them the required notice.
  • The default percentage starts at 3% and gradually increases to 6% with each year that an employee participants. The default percentage cannot exceed 10%.
  • The employer must contribute either a matching contribution of 100% of the 1st 1% of compensation and 50% of the next 6% of compensation or a 3% non-elective contribution for all participants including those who choose not to contribute.
  • Employees must be 100% vested in the employer's contribution after no more than 2 years of service.
  • Employees can choose not to contribute (opt out) or to contribute a different percentage of pay.

Default investments if employee does not make an election1

  • Your employer must choose an investment option for automatic contributions which meet certain criteria. You always will have the opportunity to select another investment option offered within the plan.
  • You must be given an opportunity to change your investment choice.

Benefits of automatic enrollment

You are saving for retirement

It’s easy, convenient and ideal for today’s mobile workforce.

You are in control

  • With automatic enrollment, you can still choose how much to contribute and how your retirement funds are invested. Check your retirement account regularly to make sure that the contribution rate and investment options line up with your retirement goals.
  • You control your account and may take money out subject to the plan's distribution rules. Withdrawals are taxed as ordinary income and may be subject to an additional 10% early withdrawal tax if taken prior to age 59½.

You can opt out

Although companies are encouraged set up an automatic enrollment arrangement, they’re not required to do so. Nor do you have to participate. If the plan's automatic enrollment arrangement is an EACA, you may have 90 days to elect to have your automatic contributions refunded to you.

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