Deferred compensation programs typically offer open enrollment year-round. Employees can choose to participate when they feel ready and motivated to do so. This traditional enrollment method is known as the "opt-in" approach. However, many employers are moving to an "opt-out" or "enhanced active choice" approach where employees are asked to specifically indicate that they do not want to save for retirement.
How does this work? Consider distributing a memo that describes the benefits of participating in the retirement savings plan and ask employees to choose from a series of options:
Note that the fourth option helps heighten employees' awareness of the possible consequences of non-participation. Wording the option this way and encouraging them to consider one of the other options helps employees avoid regret aversion -- the desire to minimize future regret from not participating in the retirement savings plan. The option is worded in such a way that it helps employees reassess their priorities.
Using enhanced active choice and asking employees to actively choose to participate or not is one of the great success stories in increasing participation rates in retirement savings plans. Studies show that programs using enhanced active choice boast as many as 75 percent choosing to participate in the program.1 If you are interested in discussing this in your plan, please contact your advisor for assistance.
1Journal of Consumer Psychology. Enhanced active choice: A new method to motivate behavior change. October 2011.
Last reviewed 6/1/2022
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