Should You Auto-Increase Your 401(k) Contribution Rate?

Over the past 30 years, there has been a significant revolution in 401(k) plan administration. Often referred to as auto-escalation or auto-escalation, here’s how it works: If you’re automatically enrolled in a plan and don’t participate in the auto-escalation feature, then your deferral rate will increase over time, up to there. maximum plan. The frequency, rate of increase and plan maximum can vary, but a common approach is an annual increase of 1 percentage point on the anniversary of your first sign-up, up to a maximum of 10%.

According to a 2021 study by the Plan Sponsor Council of America (opens in new tab), more than half of all defined contribution plans adopted an auto-escalation approach. It has also become increasingly common for plans to have a default auto-increase provision to increase your rate above what is necessary to receive the maximum employer contribution. For example, a plan that matches 100% contribution up to 6% deferred payment may automatically enroll you at 3% and then increase your rate by 1 percentage point per year until you reach a 10% auto-increasing limit.



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