ADDING AUTOMATIC 

ENROLLMENT TO YOUR 

401(K) PLAN
Why Add Automatic 

Enrollment to Your 401(k) 

Plan?

By providing a 401(k) plan to your 

employees, you have helped many 

of them start on the road to a secure 

retirement. You may be looking to 

increase participation in your plan so 

that more of your employees will get 

started. If so, an automatic enrollment 

401(k) plan may be the option for you.

Automatic enrollment permits you 

to act on your employees’ behalf 

by getting them to build their 

retirement savings with pre-tax 

employee contributions and matching 

contributions from you. It can be a 

valuable tool for increasing the number 

of employees that participate in your 

401(k) plan and can significantly 

increase their retirement savings. 

And once your employees are in the 

plan, it is likely that they will stay 

in the plan. By adding an automatic 

enrollment feature to your 401(k) plan, 

you provide your employees with an 

important long-term benefit that will 

help you attract and retain qualified 

employees.

Automatic enrollment 401(k) 

plans offer additional advantages. 

Employers may invest the accounts of 

automatically enrolled employees in a 

default investment that is designed to 

grow employees’ accounts at the pace 

needed to build adequate retirement 

savings. Moreover, the employer may 

be protected from fiduciary liability for 

having chosen default investments that 

meet certain requirements.

Automatic enrollment also offers 

significant tax advantages, including 

deduction of employer contributions 

and deferred taxation on contributions 

and earnings until distribution. 

Automatic enrollment increases 

participation, thereby making it more 

likely that a plan will pass the Internal 

Revenue Code’s nondiscrimination 

testing.

With more workers approaching 

retirement, saving is a high priority. 

Automatic enrollment 401(k) plans are 

an effective way to get employees to 

save now and to continue saving.

Helping Employees Save 

for Retirement

There may be many reasons why 

employees have not enrolled in a 

plan. Maybe they need the money to 

buy a car, pay off debts, save for their 

children’s education, buy a home, or 

just pay their daily living expenses. 

Maybe they think that retirement is too 

far away to start saving now. Or maybe 

they intend to sign up, but just haven’t 

gotten around to it.
Today, people are living longer and 

the cost of retirement is increasing. 

As you already know, an employer has 

an important role to play in helping 

employees save: workplace retirement 

plans are a highly effective way for 

employees to save, and automatic 

enrollment helps them take advantage 

of the plan and keep saving.

Limiting Fiduciary Liability

You may not have considered an 

automatic enrollment feature because 

of concerns relating to potential 

fiduciary liability for losses to 

employees’ accounts if you select 

investments for employees who fail 

to provide investment directions. 

However, you can limit this liability by 

investing these employees’ accounts 

in certain default investments that, 

over the long run, are designed to 

minimize the risk of large losses and to 

provide long-term growth. Examples 

of investments that can be used include 

lifecycle funds, balanced funds, and 

managed accounts. You may already 

offer one of these investments as part 

of a broad range of investment options 

in your plan.

To take advantage of this fiduciary 

relief, you need to notify your 

employees that they can direct their 

own investments and that you will 

invest their contributions if they do 

not provide instruction. You also need 

to describe the default investment that 

you select for your plan.

Finally, state wage withholding laws 

are not a barrier to automatically 

deducting employee contributions 

without employees’ permission.

For more information about automatic 

enrollment 401(k) plans, see Automatic 

Enrollment 401(k) Plans for Small 

Businesses, Publication 4674, 

available from the U.S. Department of 

Labor’s Employee Benefits Security 

Administration and the IRS. It is 

available on both the DOL Website

and IRS Website. You can order the 

publication electronically or by 

calling toll free 866-444-3272.
EMPLOYEE BENEFITS SECURITY ADMINISTRATION

UNITED STATES DEPARTMENT OF LABOR

Publication 4721 (Rev. 9-2019) Catalog Number 52341Y

Department of the Treasury Internal Revenue Service www.irs.gov

September 2019