Auto-Enrollment and Auto-Escalation

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Auto-Enrollment and Auto-Escalation can help increase retirement readiness

A solution to an ongoing employee challenge

Saving is easier when it’s automatic

Your employees may be saving for retirement, but are they saving enough?

Acting on your employees’ behalf, you can initiate this feature to ensure that they begin saving for retirement. Mutual of America will provide participants with a notice to make affirmative elections.

Auto-Enrollment starts employee participation and contributions.

Auto-Escalation increases employee contributions.

Auto-Enrollment automatically enrolls employees in your company retirement plan

It’s simple and convenient for employees. Once enrolled, a set amount of their paycheck is deferred to the plan. That amount can be adjusted, giving employees the chance to save even more. Depending on the choice made by the plan sponsor, contributions can be on a pre-tax basis, which helps reduce employees’ taxable income, or as post-tax Roth contributions, which provides tax-free growth.⁴

Ensure that your employees are even more prepared. Raising default deferral rates with automatic features can add to employee savings and help get them closer to contribution levels most experts recommend. More employers are doing just that. Industry research shows: • •

Eligible Automatic Contribution Arrangement (EACA) Enrolls all employees at the same contribution rate and may allow employees to withdraw their enrollment contributions.

Qualified Automatic Contribution Arrangement (QACA) Automatically enrolls employees at a deferral rate of 3% or higher, requires employers to make matching contributions and offers Auto- Escalation. This arrangement includes special Safe Harbor provisions that exempt 401(k) plans from annual nondiscrimination testing.

Automatic Contribution Arrangement (ACA) Specifies the percentage of wages that employees will contribute and allows them to change the percentage or choose not to participate.

With Auto-Enrollment, you have three plan options:

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Insurance products are issued by Mutual of America Life Insurance Company. Mutual of America Securities LLC, Member FINRA/SIPC distributes securities products. Mutual of America Retirement Services LLC provides administrative and recordkeeping services. Mutual of America Financial Group is the trade name for the companies of Mutual of America Life Insurance Company.

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Both of these programs can enhance your company’s retirement plan. Research shows that more than 62% of employers have adopted Auto-Enrollment, and almost 78.7% of those offer Auto-Escalation.¹

AUTO-ENROLLMENT AND AUTO-ESCALATION

It is generally recommended that employees contribute 10%–15% of their salary to their employer-sponsored retirement plan. But the average deferral is only about 8%.¹ As a result, employees may face a savings shortfall and even delay their retirement. To help address this, employers are increasingly offering automatic savings features in their retirement plans, enabling employees to put more money aside and increase their deferrals year after year.¹ You can provide this retirement savings tool for your employees, too. Mutual of America can help you get started.

Your organization’s retirement plan is designed to help your employees reach their retirement goals. However, those goals aren’t always achieved.

Research shows employee contributions have the biggest impact on increasing retirement savings balances, more than benefits paid or investment returns.² By automatically increasing how much they save annually, you can help employees better prepare for retirement.

Used together, Auto-Enrollment and Auto-Escalation can provide a powerful savings opportunity.

Mutual of America plan sponsors with 401(k) or 403(b) plans have high adoption rates of these programs—in fact, 85.6% use Auto-Enrollment.³

¹Plan Sponsor Council of America (PSCA), 2021, 64th Annual Survey of Profit Sharing and 401(k) Plans.

²Holden, Sarah, Jack VanDerhei, and Steven Bass, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances, 2010–2018,” EBRI Issue Brief, no. 514, and ICI Research Perspective, 26, no. 6, page 11 (October 2020). ³Mutual of America plan data as of March 31, 2021.

Boost employee participation. In addition to enrolling new employees, you can increase your retirement plan participation by enrolling eligible non-participating employees. These employees have the option to opt out if they prefer not to participate, or adjust their contribution amount if they choose to stay enrolled.

⁴Generally, withdrawals are subject to income tax at your ordinary income tax rate at the time of withdrawal,and if made prior to age 59½, a 10% federal tax penalty. ⁵Plan Sponsor Council of America, (PSCA), 2021. 64th Annual Survey of Profit Sharing and 401(k) Plans.

Auto-Escalation helps employees take a more guided approach to saving

Plan contributions automatically rise every year, typically 1%–2%, up to 15% of compensation. This can help boost the savings of employees who don’t regularly increase the amount they contribute to the retirement plan.

Without Auto-Escalation Contributing 3% annually

With Auto-Escalation Contributing 3% initially with 1% annual increases

$191,696⁶

$538,644⁶

Year after year, even with a small annual increase, Auto-Escalation can have a significant effect on retirement savings by age 65.

⁶The illustration above assumes a tax-deferred investment with a starting balance of $0 at age 25, a $40,000 salary and a hypothetical average annual rate of return of 6% compounded annually. This is not a prediction of any type of investment, is not representative of any investment strategy and is provided for illustrative purposes only. Investment returns are not guaranteed, you could lose money.

Make a positive difference for your employees and your organization

While some employers may not have considered Auto-Enrollment in the past, employee response is highly favorable, with low opt-out rates. In fact, studies show that enhancing plans with Auto-Enrollment has been a key factor in higher participation rates over the last decade.⁷

⁷Plan Sponsor Council of America (PSCA), 2021. 64th Annual Survey of Profit Sharing and 401(k) Plans. ⁸Consult with your plan’s tax professional for more information about program advantages.

Mutual of America’s group and individual retirement products that are variable annuity contracts are suitable for long-term investing, particularly for retirement savings. The value of a variable annuity contract will fluctuate depending on the performance of the Separate Account investment options you choose. Upon redemption, you could receive more or less than the principal amount invested. A variable annuity contract provides no additional tax-deferred treatment of benefits beyond the treatment provided to any qualified retirement plan or IRA by applicable tax law. You should consider a variable annuity contract’s other features before making a decision.

Nearly a third of plans have set default deferrals at 6%.⁵ Average deferral rate for plans with automatic features is 7.8%.⁵

Automatic Contribution Arrangement

Eligible Automatic Contribution Arrangemen

Qualified Automatic Contribution Arrangement

Simplified benefits administration Auto-Enrollment reduces the need to encourage your employees to participate. Because of special Safe Harbor provisions, your plan may be exempt from annual nondiscrimination testing.

Greater participation could lead to lower fees Having a higher balance in your organization’s plan due to increased participation could mean lower fees for your plan.

Multiple tax credits Your company could realize deductions for matching employee contributions, a $500 SECURE Act tax credit and reduced payroll taxes.⁸

Higher perceived value of your organization This savings program demonstrates your concern for the financial future of your employees. It can also help you attract and retain new talent.

Smoother compliance testing Your plan may more easily pass required annual nondiscrimination testing because Auto-Enrollment increases plan participation.

Your organization could be benefiting from these advantages while helping employees build greater financial security:

Automatic Contribution Arrangement (ACA)

Eligible Automatic Contribution Arrangement (EACA)

Qualified Automatic Contribution Arrangement (QACA)

AUTO-ENROLLMENT AND AUTO-ESCALATION

Saving is easier when it’s automatic

A solution to an ongoing employee challenge

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Do you have retirement plan accounts with former employers or IRAs with different financial institutions? You may be able to save time, money and effort by transferring your retirement savings from other retirement plans or IRAs into your Mutual of America retirement plan account. You’ll receive one convenient quarterly statement, and you can manage your account anytime at mutualofamerica.com. Before making a transfer, you should review the accounts you have with other providers to determine the fees and expenses you currently pay and whether there are any surrender charges that may result and to ensure that it is in your best interest to transfer your other accounts to your current plan.

Together, we can help make your employees more retirement-ready

320 Park Avenue, New York, NY 10022-6839 mutualofamerica.com • 800.468.3785

Securities offered by Mutual of America Securities LLC, Member FINRA/SIPC, marketed under the Mutual of America Financial Group brand.

You should consider the investment objectives, risks, and charges and expenses of the investment funds and, if applicable, the variable annuity contract, carefully before investing. This and other information is contained in the funds’ prospectuses and summary prospectuses and the contract prospectus or brochure, if applicable, which can be obtained by calling 800.468.3785 or visiting mutualofamerica.com. Read them carefully before investing. Mutual of America’s group and individual retirement products that are variable annuity contracts are suitable for long-term investing, particularly for retirement savings. The value of a variable annuity contract will fluctuate depending on the performance of the Separate Account investment options you choose. Upon redemption, you could receive more or less than the principal amount invested. A variable annuity contract provides no additional tax-deferred treatment of benefits beyond the treatment provided to any qualified retirement plan or IRA by applicable tax law. You should consider a variable annuity contract’s other features before making a decision.

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866.954.4321

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For more information, contact your local Mutual of America office.