Which option best describes the default behavior of automatic escalation?

The best description of the default behavior of automatic escalation is that it gradually raises contribution rates unless opted out. Automatic escalation is a feature commonly implemented in retirement plans, particularly in 401(k) plans, to encourage employees to save more for retirement without requiring them to actively make the decision each time.

When automatic escalation is in place, the contribution rate is programmed to increase automatically—often on an annual basis—by a predetermined percentage or amount. This increase continues until the employee either reaches a specified maximum rate or actively chooses to opt out of the increase. This design is meant to nudge employees toward greater savings while still allowing them the freedom to manage their contributions according to their personal financial situation.

The other options do not accurately describe automatic escalation. The first option suggests a reset of employee contributions, which does not align with the principle of gradual, continuous increases in contributions. The second option implies that employee approval is needed for each increase, which undermines the automatic nature of the feature. Finally, the last option specifies a limitation based on age, which is not a standard characteristic of automatic escalation, as it typically applies across the board to eligible employees regardless of age.