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Why "Six is the New Three" When It Comes to Automatic Enrollment

At last month’s Retirement Advisor Council annual meeting, I had the pleasure of sitting in on a session about participant retirement readiness, where Joe Smith made the statement: “six is the new three” when it comes to automatic enrollment. While I tend to be a sucker for snappy catch phrases, here’s the thing - this catch phrase actually has a lot of merit to it!

Why? Let’s start with the basic meaning - instead of auto-enrolling participants at a 3% salary deferral rate, which traditionally has been the case, why not auto-enroll them at a more meaningful 6%? After all they can still opt out, and 6% will provide a far more meaningful benefit at retirement (particularly in plans that match more than 3% of pay), than a 3% default rate ever could.

While this could backfire if more participants opt out of auto-enrollment because of the higher rate automatic deferral rate, according to John Hancock’s State of the Participant 2020 report, the opposite is actually the case. 12% of employees opt out at 3%, but only 10.4% did so at 6%. Thus, it is possible that with an auto-deferral rate of 6%, more employees, rather than fewer, may contribute to the retirement plan, than they would at 3%.

It’s important to remember that, in most auto-enrolled plans (since they don’t default to Roth deferrals) 6% is not actually 6%, due to tax savings. In fact, for the vast majority of participants, their gross pay would not be reduced by anywhere near 6%. Those plan sponsors who fear that 6% may be “too much” for employees should be sure to take this tax savings into account.

Thus, I entrust the legions of people reading this to take the catchphrase, “six is the new three” and make it viral! Well - not really, but if we can encourage plan sponsors to end the days of a 3% default deferral rate for auto-enrolled plans, it will go a long way toward ensuring a more secure retirement for employees!

Is six the new three in your retirement plan? Feel free to tell me your story on LinkedIn, Twitter or at

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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