Certified Plan Sponsor Professional (CPSP) Practice Exam

Which method can help minimize the risk of employees not participating in a 401(k) plan due to procrastination?

1. Mandatory enrollment

2. Automatic enrollment

3. Increased awareness campaigns

4. Higher employer contributions

The correct answer is: Automatic enrollment

Automatic enrollment is an effective method for minimizing the risk of employees not participating in a 401(k) plan due to procrastination. This approach involves automatically enrolling eligible employees into the retirement savings plan when they start their employment, unless they opt out. By implementing automatic enrollment, the decision-making burden associated with choosing to participate is removed, addressing the tendency for individuals to delay or avoid action. This means more employees are likely to participate, as they are defaulted into the plan and given a more seamless path towards saving for retirement. In contrast, while mandatory enrollment might seem like a strong option, it typically involves a mandatory requirement to participate, which could face resistance from employees and create issues related to compliance and employee satisfaction. Increased awareness campaigns can be beneficial for informing employees about the importance of participation, but they may not sufficiently overcome the inertia or procrastination tendencies that prevent many individuals from taking action. Higher employer contributions can incentivize participation, but they do not actively address the issue of procrastination, as individuals must still make the conscious decision to enroll.