Auto enrollment and escalation can be very useful in boosting plan participation and setting in motion all the good effects that result from that. But like medicines, they should be used properly — and if they’re not, they can cause harm. So argues a new white paper from Milliman, “Auto-enrollment: Two Sides to Every Coin.”
The most common mistakes in administering auto enrollment are failure to notify employees of the feature and failure to enact auto enrollment and withhold deferrals on time or at all. Milliman says that bad data is usually the cause of these mistakes, which include:
• incorrect date of hire;
• miscoded rehires; and
• errors in entering deferral changes into the payroll system.
The IRS says plan sponsors that have missed deferrals with less than nine months left in the year must deposit the following:
• 100% of missed matches;
• 50% of missed deferrals; and
• earnings at a reasonable rate.
Milliman says that the most common errors in administering auto escalation also are data-related, usually because a deferral was not correctly escalated.
An additional problem can result when an employee for whom auto enrollment creates an account stops the deferral. This results in an account balance that remains until the employee leaves and takes a payout. This can result in higher administrative fees, additional printing and postage to send statements to employees who do not need them and difficulties in locating former employees.
