Sometime this month, 65 million individuals will receive the year-end retirement plan statements. Given that the largest portion of the decline in the market occurred during the fourth quarter, many participants are going to be surprised at the extent of the damage to their account balances. I'm certain that most advisors have been working closely with their retirement plan clients evaluating the need to add or replace investment options and helping them develop responses to participant concerns. There is, however, one issue that will require special attention: automatic enrollment.

Since automatic enrollment was sanctioned by the Pension Protection Act of 2006, a large number of plan sponsors have added this feature to their retirement plans. A smaller but still sizable number of sponsors also added automatic escalation of deferral rates. Sponsors like automatic enrollment because it increases participant in the plan. Participants appear to like it as well. Spectrem Group research shows that only a minority of those covered have made the effort to decline participation.

Automatically enrolled participants went along with program initially. Soon, however, they will get a statement that in many cases will show a balance that is less than they contributed since being enrolled. The question is, what proportion of automatically enrolled participants are now going to decide to opt out of the plan as soon as possible? And, what are they going to advise their newly hired co-workers who will also be putting money into the retirement plan unless they act to opt out? Advisors need to address this issue with their clients who have implemented an automatic enrollment program. They need to ensure that automatically enrolled participants are counseled about the long-term nature of retirement saving and encouraged to remain in the plan.

In addition to the impact on participants, the current investment climate may discourage some plan sponsors from adding or including automatic enrollment in their plans. Over time this feature will be good for employees and for the company. Advisors need to help their clients and prospects see this.

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