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Auto Escalation in Plans

Sponsored by MFS Investment Management

Automatic features are known to help boost plan participation in 401(k) plans and while automatic enrollment is now used in a plurality of plans (and the majority of large plans), auto-escalation has been slower to take hold. According to PSCA’s 65th Annual Survey (2021 plan data) only 40 percent of plans with automatic enrollment automatically increase the deferral rates over time. As the use of automatic enrollment increases with the implementation of SECURE 2.0, the use escalation likely will as well, along with customization in how it is used. Though escalating one percent per year on a plan-set date up to a set maximum is the most common structure for escalation, there are other options that could be used as appropriate for a specific employer base (0.5% per year, or 0.5% every six months, 1% every two years, etc.).   


To get a better understanding of why employers choose to use auto-escalation or not, we asked members in this week’s QOTW. More than half of respondents (52 percent) stated they use an auto-escalation feature (though for some it is an opt-in feature, not an opt-out feature), indicating we may see an increase in this in PSCA’s 66th Annual Survey (open for participation now). Members on both sides had a lot to say about using automatic escalation in their plans – see comments below.

Do not offer:

  • Auto escalation is an opt-in feature for participants.  This feature is not suitable for lower paid employees in our workforce, so we do not offer it.
  • Because we do not have an automatic enrollment feature either.
  • Compliance with rule will be hard to track and manage
  • Considering with future auto enrollment
  • cost of administration
  • Do not feel that it is appropriate for our employees
  • Employees asked questions when the contribution percentage went up without action on their part and were likely to revert back.
  • However employees can opt in to escalation.
  • Instead of an opt-out auto escalation , we offer participants who wish to elect to have their deferrals increase periodically an opt-in escalation feature.
  • Its available, we elected not to use it.
  • Just implemented auto enrollment, maybe in another year or two.
  • Management feels it causes unnecessary administration when participants don't understand or fail to opt out.
  • Mgt's cost concerns
  • Most employees already contribute the maximum amount
  • Our 401(k) Committee felt strongly about letting increased contributions be the participants choice. We have high participation with auto enrollment with very few participants opting out and have put more focus and emphasis and getting them into the plan and staying in it over increasing contributions.
  • Our plan is a voluntary plan, supplemental to a mandatory defined benefit plan. Also, it's a multi-employer plan, and many employers have other supplemental retirement plan offerings.
  • Our recordkeeper can't manage only doing for certain groups, and we haven't been able to get our unions to agree.
  • Since we already have auto enrollment with a 98% participation rate, we did not feel auto escalation is necessary at this time.
  • The company's plan is "old school" and my goal is to change that.
  • The employer rate is set.  The employee can defer what they desire as long as they don't go over the limit.
  • The owners just have chosen not to use that feature.
  • To not increase the workload
  • Unsure whether this would be favorably received by our associates
  • We are a small company with a Safe Harbor plan.  We allow our employees to make their own decisions on how they want to invest/save their money.  We provide them with access to a Financial Advisor to counsel them.
  • We are an investment banking firm.  Employees are well versed on the topic and capable of handling their own investment decisions with employer intervention.
  • We are considering adding it because we auto-enroll at 3%, and most of our employees just leave it at that percentage, which is generally not enough.
  • We are not a progressive company.  We tend to be very late adopters.
  • We believe it is the employee's responsibility to make that decision
  • We do not auto enroll.  Once an employee enrolls there is an escalation feature they can select should they choose.
  • We do not have auto enrollment feature in our plan
  • We do not have it in our plan.
  • We feel it would be too disruptive to pre-set this for our associates. It is available as an opt-in option.
  • We have a voluntary option that can be set by employees. We are a profit sharing plan with a 401(k) voluntary component
  • We have an escalation feature, but it is opt in rather than opt out
  • We implemented auto-enrollment but were not successful in negotiating auto-escalation. We still have this on our list for a possible future change.
  • We offer auto escalation as a feature but it’s not mandatory.
  • We offer the escalation if the EE selects it -- it's not automatic.
  • We use auto enrollment but for now, let participants decide how much they contribute
  • We would have a mutiny on our hands if we did this.  Our workforce consists of many who come from a culture that does not trust the system.  This has been a major hurdle in our effort to increase participant activity.
  • Will be looking at this for plan year 2024
  • We are just going to Auto-enroll this plan year. Auto escalation my be something we review next year.


Offer auto-escalation:


  • A great feature to help participants save more each year without realizing it.
  • Allows participants to increase without having to make an additional effort.
  • Auto enrollment at 5% with 1% at first of each year to a max of 10%. Most optimal, sustained way to get participants to contribute more thru time.
  • Auto escalation and auto enrollment have done wonders for our plan and participants.
  • Currently we auto-enroll at 3% and auto increase by 1% annually up to 5%. 5% is the amount to contribute to receive the max employer match.
  • employee escalation helps employees save more because they never think to increase their deferral from when they were hired.  This slow 1% escalation typically goes without the employees noticing a big impact in their net wages.
  • Encourage saving
  • Feel it is the right thing to do for those employees who tend to be hands off on their retirement savings.
  • Good way to drive increasing savings rates - overcomes employee inertia to take action
  • Helps employees save more without action on their part.
  • Helps participants save for retirement
  • Included with our automatic deferral feature implemented several years ago
  • It helps to encourage employees to increase their contribution rates.
  • It helps with inertia.  Most do not opt out of the feature so helps grow their 401k balance!
  • It is a great way to help employees increase their savings for their retirement goals.  Makes it easy for the employee because it is automatic.
  • it is an option employees can elect to use...
  • It is one of the most valuable tools to combat decision inertia
  • It's a great way to help employees increase contributions over time and they don't need to remember to make the change.
  • Like auto enrollment, it helps participants save more for retirement. It also helps with discrimination testing results.
  • Only for those who are auto enrolled
  • Our auto increase is tied to those that accept the initial auto enrollment but can opt out at any time. We also provide the opportunity for all participants to opt in to an auto escalation with the ability to select the timing and amount of increase.
  • Participants who were auto enrolled were not making increases until we turned on the escalation.
  • The automation must be initiated by the participant. Can change anytime.
  • This feature is self-directed.  The participants can set it up and they can stop it as well.
  • This has been a great feature to our plan.  Less than 3% of participants do not participate.
  • To assist participants with proper savings and maximum match.
  • To encourage and increase engagement in the plan.
  • To encourage deferrals to take advantage of full match
  • To encourage employees to continue to save enough to eventually retire.
  • To encourage increases in retirement savings.
  • To help EEs increase savings over time.
  • To help employees increase retirement savings passively.
  • To make sure that employees save more for retirement. They always have choice to opt-out if it is too much for them.
  • To nudge participants to save more for retirement.
  • We added this feature in 2022. We auto escalate once a year in March, in conjunction with pay raises.
  • We also elected to increase it from 10% to 15% with SECURE 1.0 Act provisions.
  • We do have the auto-escalate feature but there are a significant amount of elections to drop-out of this feature.
  • We do, most opt-out of any changes.
  • We don't have auto enrollment, but we do have a voluntary auto escalation feature that is well used. We also have an "easy button" enrollment that includes auto escalation.
  • We escalate 1% per year until 6% deferral is reached.  Might consider making this higher in light of Secure Act 2.0.
  • We have auto enrollment and auto escalation (increase). Participants who do not make changes to their enrollment or auto escalation (increase) will begin contributing to their 401k account at 3% with an annual increase of 1% until they reach 6%.
  • We try to use inertia to our participants' advantage. If it's on auto, they don't have to think about it again and it's timed with raises so they earn more and save more at the same time.
  • We use a voluntary opt-in auto escalate. Associates can opt for it, choose the increase %, choose when they want it to happen and if they want a cap.
  • Yes for all but one location.  We would like to change that one location to include it.
  • Yes.  1% every year effective on June 1, right after we process annual merit increases.  Employees can opt out of the auto escalation feature at any time, or set their own auto escalation date -- January 1, for example.  We always notify employees in advance so they can adjust their deferral settings accordingly.