Offering a 401(k) plan benefits you and your business—whether or not your employees participate. However, encouraging employee participation can help everyone save for retirement while maximizing tax advantages and protecting your plan from costly compliance issues.

This article explains how to boost participation, how automatic enrollment and Safe Harbor provisions work, and the benefits of each for both employers and employees.

Why Encourage Employee Participation?

Although your employees aren’t required to participate in the plan for you to enjoy tax savings, a major reason to sponsor a 401(k) is to help your team build financial security. Higher participation can also help your plan avoid IRS compliance issues and support a more engaged workforce.

Here are three effective ways to encourage employees to start saving:

1. Spread the Word

Make sure your employees know you offer a 401(k) plan. You can resend the welcome email anytime via 401(k) > Manage Employees on your Employer Dashboard. This message highlights the benefits of participating and includes enrollment instructions.

2. Add Automatic Enrollment and Escalation

Automatic enrollment can significantly boost participation by enrolling eligible employees into the plan at a default contribution rate—without requiring them to take action. Employees can still opt out or change their rate, but many stay enrolled once they’re in.

If your plan also includes automatic escalation, employees who are automatically enrolled and don’t make changes will see their contributions increase by 1% each year (after the 2nd year of participation). This helps gradually increase their retirement savings over time without requiring manual adjustments.

Note: Under SECURE Act 2.0, many new 401(k) plans are required to include automatic enrollment and automatic escalation.
See: Automatic Enrollment Requirements for 401(k) Plans Under SECURE Act 2.0

3. Add a Safe Harbor Provision

A Safe Harbor 401(k) plan offers powerful benefits for you and your employees. By making required contributions to employee accounts, you:

  • Encourage participation by offering a guaranteed employer contribution
  • Automatically satisfy IRS nondiscrimination testing (such as ADP/ACP testing)
  • Ensure fairness across income levels
  • Enjoy tax deductions on your contributions

Understanding Automatic Enrollment and Escalation

If your plan includes automatic enrollment, eligible employees are enrolled at a default contribution rate on their entry date—unless they choose to opt out or change their rate.

Automatic Escalation (if elected):
Each year, an enrolled employee’s contribution rate increases by 1% (up to a maximum rate set in your plan), unless they opt out or change their contribution level.

Annual Notices:
Each year, employees receive a required notice informing them of:

  • Their enrollment status
  • How to opt out
  • How to adjust their contribution rate

Timing of Notices:

  • Automatic Enrollment Notices are available online by December 2nd.
  • Employees receive an email with instructions to view the notice in their secure portal.
  • Enrollment/Opt-Out Notices are sent as employees approach eligibility if they haven’t already made an election.

How does a Safe Harbor 401(k) Plan Work?

A Safe Harbor plan is a special type of 401(k) that includes mandatory employer contributions in exchange for simplified IRS compliance. Safe Harbor plans are automatically considered to pass the IRS’s annual nondiscrimination tests, helping to ensure highly compensated employees (HCEs) can contribute the maximum amount each year.

Contribution Options for Employers

You must choose one of the following contribution methods:

  • Basic Match:
    100% match on the first 3% of employee deferrals + 50% match on the next 2%
  • Enhanced Match:
    100% match on employee deferrals up to 4% (or up to 6%)
  • Non-Elective Contribution (NEC):
    Contribute at least 3% of compensation to all eligible employees—regardless of whether they make deferrals

⚠️ Important: While Safe Harbor plans are exempt from most compliance testing, safe harbor match plans may still be subject to top-heavy minimum contributions, if you are also funding discretionary employer contributions. 

Benefits for You as the Employer

With a Safe Harbor 401(k), you can:

  • Contribute the maximum allowable deferral as a business owner or HCE—regardless of what non-HCEs contribute
  • Avoid ADP/ACP testing
  • Deduct employer contributions as a business expense
  • Enhance your benefits offering to attract and retain talent

Benefits for Your Employees

Safe Harbor plans offer:

  • Guaranteed employer contributions—either a match (requires participation) or 3% of compensation (regardless of participation)
  • Pre-tax contributions from both employee and employer
  • Immediate 100% vesting on all Safe Harbor employer contributions
  • A clear incentive to start saving for retirement

Need Help?

If you would like to discuss adding automatic enrollment or safe harbor to your plan, please contact us.