- A type of 401(k) plan that automatically enrolls the employees of a company to save for their retirement. Eligible employees of a company with this policy are enrolled in the plan at a default contribution rate, usually around 3% of wages, and funds are directed into a default allocation. Employees can change the terms of the plan or opt out completely if they don't want to participate. This differs from a typical 401(k) in that retirement savings will continue to accumulate without any action from the participant.
Also known as an "automatic 401(k)".
Due to the complexity of some 401(k) forms and the stress of allocating the funds, some people may choose not to participate in a plan at all. An opt-out plan does this work for the employee, while still allowing him or her to change the terms as needed.
Investment dictionary. Academic. 2012.
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