Saving for retirement and thinking about the long-term future is difficult for many workers. Some companies and a number of states, like NY and CA, have decided to create and mandate auto-enrollment features for their 401(k) or retirement plans to encourage workers to save more. Additionally, under the Secure 2.0 Act, all new retirement plans will mandate auto-enrollment at 3% of pay on a pre-tax basis under federal law. While this, in theory, sounds like a great way to encourage plan participants to save for their future, in reality there are several drawbacks to auto-enrollment that can hurt someone's long-term financial security. The primary concern with auto-enrollment is that it diminishes the importance of having a proactive role in financial planning and retirement saving. A passive approach can be detrimental if savers aren't fully involved and educated on their options around contribution rates, asset allocation and whether or not to use a Roth option.

How much to contribute?

The auto-enrollment contribution rate tends to start very low: roughly 3-4%. While this can be a good starting point for individuals early on in their career who don't feel they have a lot of money to spare each paycheck for retirement savings, it also doesn't give employees the opportunity to choose a higher contribution amount. Since employees don't have to take any action with auto-enrollment, they may just accept what's being done for them without looking into it further.