Introducing Automatic Contributions Made Easy: Employer Guide and Best Practices

Automatic contribution arrangements, also referred to as a negative deferral election, automatic enrollment, automatic deferral, etc. have been a valuable tool to increase 401(k) plan participation for several years.  A 2021 report released by Vanguard found that automatic enrollment increased participation by nearly 50% and among new hires specifically, participant rates tripled under automatic enrollment in plans they oversee compared with voluntary enrollment. ¹   Historically, it has been at the Employer’s discretion whether an automatic enrollment feature makes sense for their plan participants but a new provision in SECURE 2.0 set to take effect January 1, 2025, will now require newly established plans to contain an automatic contribution arrangement.*  As the number of plans containing an automatic contribution arrangement is expected to rise, the importance of properly maintaining and administering these plans comes into sharper focus.  While not particularly complicated, the automatic contribution arrangements do add some administrative complexity and nuance that Employer’s need to be aware of to ensure plan compliance and ease of operation for plan participants.  To this end, MVP continues to develop and enhance recordkeeping tools and reporting features to aid Employers in this regard and ease administrative burdens. 

We are excited to introduce the first issue of our new educational campaign, titled “Automatic Contributions Made Easy: Employer Guide and Best Practices.” In this installment, we cover the basics of automatic contribution arrangements, including the different types, relevant rules, and notice and reporting requirements.  The material is presented in both a written explanatory piece as well as a summary video.

Over the coming weeks, we will release a new educational video and handout each week, aimed at helping employers understand automatic contribution arrangement requirements, reporting tools, enrollment and payroll handling with auto enrollment, and administrative best practices. These materials will be delivered via email and posted on our website. At the end of the series, we will provide a summary document and guide for future reference.

Our goal is to enhance client education and improve administrative efficiency. Whether your plan currently has an active automatic contribution arrangement or is subject to the new mandate, we hope these resources will help you better understand the compliance requirements and discover best practices for greater efficiency and ease. 

We are here to help you with all of your plan needs.  Please don’t hesitate to reach out to your relationship manager for additional information or to answer any questions you may have.

MVP Plan Administrators

 Attachment-Automatic Contributions Made Easy

*Note:  If your plan is subject to the new automatic contribution arrangement under SECURE 2.0, we will be reaching out to you individually regarding the mandate requirements and next steps.

¹{Vanguard – Automatic Enrollment: The power of the default, February 2021}.