Opt-Out Plan

Definition of 'Opt-Out Plan'


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)".

Investopedia explains 'Opt-Out Plan'


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.



comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added.
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
Trading Center