Auto-Enrollment and Employer Match: Investments for the Future

Pension plans — such as traditional plans serving teachers — are facing multiple challenges. Former NTSA President Kent Schutte, speaking at a Jan. 27 session of the 30th Anniversary NTSA Summit, offered a solution: auto-enrollment and employer matching contributions to 403(b) plans.

Schutte observed that the trends for traditional teacher pensions are for costs to increase and the benefits offered to shrink. And demographic trends can complicate that situation — like increased longevity, which exacerbates the pressures pension plans already are experiencing.

Schutte argued that auto-enrollment and 403(b) employer matching contributions offer many advantages beyond greater retirement savings and a more financially secure retirement for employees. For the employer, they offer higher plan participation, tax benefits and a workforce that’s better educated on the value of accumulating supplemental retirement accounts. They also can be an attractive recruitment retention tool and even help levelize budgeting.

In addition, Schutte said, the increased retirement savings may result in employees retiring earlier than otherwise would have been the case if auto-enrollment and an employer match had not been instituted. He noted that one of the current trends is for employees to work longer in order to pay for retirement.

Auto-enrollment and matching contributions also have broader benefits, Schutte suggested. For example, they can lessen the burden on taxpayers, since fewer retirees would need to depend on the government to cover their post-retirement expenses.

But auto-enrollment and matching are not a panacea, Schutte cautioned. Rather, they are a downpayment on the future, he suggested, remarking that “these will solve something 30 years from now.” And he cautioned that they increase employees’ recordkeeping responsibilities. Additionally, it would be wise to check how those plan features stack up against federal and state laws, as well as collective bargaining agreements.

Matching is not widespread among plans available to the education community, according to Schutte, who told attendees that just 6% of school systems have matching contributions, while 50% of 401(k)s do. “I think that auto-enrollment and 'matching' are going to be of value, but we’ve got to start talking about them,” he said.