Automatic Enrollment. Presented by: Sam Mitchell, EVP, Sentinel Benefits Group (left) Ben Healy, Client Experience Manager (right)

Transcription

1 Automatic Enrollment Presented by: Sam Mitchell, EVP, Sentinel Benefits Group (left) Ben Healy, Client Experience Manager (right)

2 Save the Date UPCOMING CLINICS September 11, 2014 Section 125 and FSA Non-Discrimination Testing September 25, 2014 Flexible Spending Account Open Enrollment October 23, 2014 Annual Participant Notices All webinars are held 2:00-3:00 EST. Register in Webinars & Events under For Companies at

3 Today s Agenda The psychology of decisions What is Auto-Enrollment Why it s become so popular How it works (and how we help make it easy) Next Steps

4 Psychology of Decisions Dan Ariely Professor of Psychology and Behavioral Economics at Duke University Author of Predictably Irrational and The Upside of Irrationality (both New York Times best sellers) Dan s TED talks have been watched over 4.8 million times.

5 The Power of Defaults Three main lessons: 1. Environment has a large, yet unrecognized, effect on our behavior 2. Our intuitions about what drives our behaviors are flawed 3. Emotions plan a large role in our decision making Source: Dan Ariely, 3 Main Lessons of Psychology

6 Opt-In vs. Opt-Out Check the box if you want to participate in the organ donor program Check the box if you don t want to participate in the organ donor program Source: Dan Ariely, 3 Main Lessons of Psychology

7 What is Auto-Enrollment? Automatic enrollment allows an employer to automatically deduct elective deferrals from an employee's wages unless the employee makes an election not to contribute or to contribute a different amount.

8 The 3 Arrangement Options Pension Protection Act of 2006 (PPA) created regulations around three automatic contribution arrangements with varying features and requirements Automatic Contribution Arrangement (ACA) Requires: Annual notice, QDIA Eligible Automatic Contribution Arrangement (EACA) Requires: Annual notice, QDIA, 12-month plan year, permissive withdrawals (90 day opt out) Qualified Automatic Contribution Arrangement (QACA) Requires: Annual notice, safe harbor employer contributions with accelerating percentage

9 Auto Enrollment How s it different? Traditional Enrollment Automatic Enrollment IN PLAN NOT IN PLAN Opt In Opt Out

10 Possible Scenarios 1. Employee elects to participate in the plan. Elects X% to contribute per pay period. Will be in the plan, but not be automatically enrolled 2. Employee enrolls and elects not to defer (includes 0% election). This is consider opting-out. Will not be automatically enrolled 3. Employee does not take any action. This employee would be automatically enrolled on their plan entry date.

11 Why auto-enrollment? Participation - All Employees With Auto Enrollment Without Auto Enrollment 82% Participation - EEs Age With Auto Enrollment 76% Without Auto Enrollment 55% 27% 56% 20% Source: Fidelity Investments, Workplace defined contribution data based on more than 20,600 plans and nearly 11.7 million recordkept participants as of 9/30/2011 and do not include tax-exempt accounts or non-qualified plans. Did you know? Only 9% of employees opt-out of automatic enrollment plans* Source: Savings Coalition of America, Fidelity Investments Presentation, July 2012

12 Benefits of Automatic Enrollment Drastically increase plan participation Happier employees, increased retention Increased plan engagement & education opportunity Tax savings Better results on annual non-discrimination testing

13 Impact of Auto Enrollment Scenario 1 Starts contributing at 40 Contribution Rate: 5% Annual Cost of Living Increase: 3% Retirement Age: 65 Salary at 40: $64,188 Balance at Retirement: $317,402 Scenario 2 Starts contributing at 24 Contribution Rate: 3% Annual Cost of Living Increase: 3% Retirement Age: 65 Salary at Retirement: $138,400 Balance at Retirement: $501,760 Brian With Auto-enrollment: Brian s retirement savings $184,358. increased by Assumes an annual rate of return of 8%

14 How it works Enrollment Materials include annual automatic contribution notice Participants can opt-out within 90 days of the first automatic contribution (EACA Arrangement ONLY) Leading to Plan Entry 90 Days into Enrollment Report to Plan Sponsor of all participants nearing plan entry. See example (Employees Approaching Eligibility). Enrolled Plan Sponsor on-demand form for permissive withdrawals (EACA Arrangement ONLY) Plan Sponsor report of employees to enroll. See example (Automatic Enrollment Status of Enrollees).

15 Myths & Concerns Participants won t like this solution. MYTH: Transamerica retirement survey found 66% of employers found participants responded positively, only 3% responded negatively. This sounds like too much work for my Human Resources Team. We can help! Similar to the way you currently receive notifications about deferral changes, Sentinel will notify you of opt-outs, escalation periods, etc. Plan sponsors aren t adopting auto-enrollment. MYTH: According to Plan Sponsor Council of America, about 46% of retirement plans utilize auto-enrollment and the trends are increasing. Of those adopting auto-enrollment, the majority set the deferral rate at 3% (with many electing as high as 6%).

16 Responsibilities Sentinel Benefits Provide auto-enrollment notice in enrollment material Provide reporting of eligible employees in our system Provide reporting of eligible employees who have not enrolled in our system Provide reporting of any participants who have opted out Plan Sponsor Must provide enrollment materials to employees Ensure all eligible employees are included in automatic enrollment process Setup employees for payroll deductions Maintain records of automatically enrolled participants and opt-outs

17 How we make it easy Notices integrated in enrollment kit Automated change notifications Automated reporting of employees approaching eligibility Automated reporting of employees to auto enroll

18 How we make it easy Notices integrated in enrollment kit Automated change notifications Automated reporting of employees approaching eligibility Automated reporting of employees to auto enroll

19 How we make it easy Notices integrated in enrollment kit Automated change notifications Automated reporting of employees approaching eligibility Automated reporting of employees to auto enroll

20 How we make it easy Notices integrated in enrollment kit Automated change notifications Automated reporting of employees approaching eligibility Automated reporting of employees to auto enroll

21 Next Steps Meet with your Plan Consultant and our Consulting team to determine the best auto-enrollment arrangement for your plan Amend the Plan Document to allow auto-enrollment Provide employees notice and education Offer Online Enrollment, Online Deferral Changes

22 Interested? Questions? Contact Ben, Sam or your Sentinel Plan Consultant Upcoming Client Clinics September 11, 2014 Section 125 and FSA Non-Discrimination Testing September 25, 2014 Flexible Spending Account Open Enrollment October 23, 2014 Annual Participant Notices