During a recent Plan Review with a client, we discussed all the normal aspects of their plan— design, administration, investments, employee education, etc. This client is a start-up company in the Silicon Valley that is rapidly growing and hires new employees on a weekly basis.

The Problem? Part of their problem that contributed to the lack of plan participation was the on-boarding process and the lack of attention to their retirement plan offering. Their plan also did not offer an employer matching contribution (like most start-ups) so many employees would skip over it as they signed-up for their different benefit options.

This client had also failed discrimination testing three out of the last six years. Discrimination testing is testing the average contributions for the Highly Compensated Employees (HCEs – $120,000 or more) versus the average contributions for the Non Highly Compensated Employees (NHCEs – less than $120,000). When the discrimination test failed, the HCEs would get money returned to them which added to their taxable income in the year they received the return. As you can imagine, the HCEs were not happy and these were some of the key people in their company.

How we increased their plan participation with 401(k) auto enroll. For the 2015 plan year, we implemented automatic enrollment for the first time and they were very curious to see the results. We discussed and reviewed this concept for about 18 months prior to implementation and the committee was skeptical of how the employees would respond.

Through our group and one-on-one education we found out that most employees know they need to save but some of them needed to be encouraged or reminded that even though the company doesn’t match, they still need to be saving for themselves. The problem was that sometimes we wouldn’t get to meet with an employee for 6 months, 12 months, 24 months or longer after they had been hired depending on their schedule. They had missed out during that time on contributions and potential earning that will have a big impact on their ending retirement plan balances.

As we have successfully done in the past, I proposed that we auto enroll all employees who are currently saving less than 6% to be enrolled at 6% and all new hires in the future to be enrolled at 6% unless they opt to contribute a different amount or opt out entirely.

The results? Growth in participation, contribution rate and the client passed discrimination testing


  • 54% participation (209 of the 384 employees)
  • 3.84% average contribution rate


  • 87% participation (425 of the 491 employees)
  • 5.71% average contribution rate

The committee was thrilled with the results and the plan easily passed the discrimination test. We now have more employees saving at a higher rate and the HCEs are able to contribute the maximum without getting any excess returns.

We are now reviewing the next step of automation with automatic increase—a tool that helps employees automatically increase their contribution each year without them having to manually elect to do so.

This is an example of why I love this business. We help companies design retirement plans that will lead to successful outcomes for their employees and their families.

Mark Laughton