Auto escalation in a 401k plan refers to a feature that allows participants to automatically increase their contributions to the plan over time. With this feature, a participant can elect to have their contributions increase by a certain percentage or dollar amount each year, typically up to a predetermined maximum.
The purpose of auto escalation is to help participants save more for retirement by gradually increasing their contributions without requiring them to take any action. By automatically increasing their contributions, participants can benefit from compounding returns and potentially achieve their retirement savings goals more quickly.
Auto escalation can be a valuable tool for retirement savers, especially for those who struggle with saving consistently or who may forget to increase their contributions over time. It can also help employees who are automatically enrolled in a plan to start saving at a higher rate without having to actively make that decision.