For many American workers, an employer-sponsored plan is the main way they save for retirement. According to the Bureau of Labor Statistics, approximately 68% of workers had access to employer-sponsored retirement plans.¹ The problem is not every worker who has access to a retirement plan takes advantage of them, even when there’s an employer match. People may not realize that these benefits are available, may be confused about how to enroll or may procrastinate doing so without understanding the financial impact of continually delaying retirement savings. Adding an auto enrollment feature may help to combat issues like this.

Before adopting, you need to decide which auto enrollment option is best for you – EACA or QACA. Let’s take a look at each.

Eligible automatic contribution arrangement (EACA)

• Uniformly applies your plan’s default deferral percentage to all worksite employees after giving the required notice
• May allow worksite employees to withdraw automatic contributions, including earnings, within 90 days of the date of the first automatic contribution

Qualified automatic contribution arrangement (QACA)

• Uniformly applies your plan’s default deferral percentage to all worksite employees after giving the required notice
• Meets additional “safe harbor” provisions that exempt your plan from annual actual deferral percentage and actual contribution percentage nondiscrimination testing requirements
• Default deferral percentage starts at 3% and gradually increases by 1% each year that a worksite employee participates, up to 15%.
• Required employer contributions of one of the following:
  • Matching contribution: 100% match for elective deferrals that do not exceed 1% of compensation, plus 50% match for elective deferrals between 1% and 6% of compensation; or
  • Nonelective contribution: 3% of compensation for all participants, including those who choose not to make any elective deferrals.
• Worksite employees must be 100% vested in the employer’s matching or nonelective contributions after no more than two years of service
• Plan may not distribute any of the required employer contributions due to an employee’s financial hardship

Keep in mind that regardless of the automatic enrollment feature you choose, the default investment fund of the Plan is one of the Voya Target Solution Trusts. The Voya Target Solution Trusts are a series of “targeted retirement date funds” designed to provide varying degrees of long-term appreciation and capital preservation through a diversified mix of investments based on a participant’s target retirement date (the date the participant will attain age 65). Participants can direct their investment out of the default fund into one or more of the Plan’s other investment options at any time.

Automatic enrollment removes the inertia that prevents your worksite employees from contributing – they don’t have to take action in order to save for retirement – it makes saving the default. It also helps them benefit from employer matching contributions, if offered.

 1 TED: The Economics Daily. Bureau of Labor Statistics, U.S. Department of Labor. November 21, 2021.

There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date.

The “target date” is the approximate date when an investor plans to start withdrawing their money. When their target date is reached, they may have more or less than the original amount invested. For each target-date portfolio, until the day prior to its target date, the portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each portfolio’s designated target year. On the target date, the portfolio will seek to provide a combination of total return and stability of principal.

Participation in a collective trust fund is limited to eligible trusts that are accepted by the Trustee as Participating Trusts. Eligible trusts generally include (i) certain employee benefit trusts exempt from federal income taxation under Code Section 501(a); (ii) certain governmental plans or other deferred compensation plans described in Code Section 414(d), Code Section 457(b), and Code Section 818 (a) (6); (iii) certain commingled trust funds exempt from federal income taxation under Code Section 501(a); and (iv) certain insurance company separate accounts. Neither the fund nor units of beneficial interest in the fund are registered under the Investment Company Act of 1940 or the Securities Act of 1933 in reliance on exemptions under these acts applicable to collective trust funds maintained by a bank for certain types of employee benefit trusts.

A collective fund is not a mutual fund; the collective investment trust fund is managed by Voya Investment Trust Co. There is no guarantee the fund will achieve its objective.

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