It is the experience of many volunteers here that the problem is in the code that is NOT posted. To put it another way, if you already know that the bug is for sure in what you post, then fix it and problem solved.
Forget the encoder for now, you probably can't use it to turn everything on and off without a relay or MOSFET in any case.
Once the unaltered sketch works, look at the encoder examples for how to read the encoder and program functions to perform based on the encoder readout.
If you want to make use of an encoder to control/change something in the code or some other modification to the code, just give me a shout (reply) or post a question with @sonofcy somewhere in the post.
If the sketch is lighting sixteen WS2812B LEDs, and you want the rotary push-button to act as a power switch, simply on button press, write "black" to every WS2812B to make it look "off."
Very helpful. I'm going to put that in now. Do you recommend putting a latching button for the power of the Arduino or is it fine for it to be "running" on black when not in use?