INDUSTRY TRENDS

Automatic Enrollment:  Becoming Business Standard 

In an effort to help workers replace diminishing pension plans and the projected decrease in Social Security benefits, Plan Sponsors are expeditiously enhancing their retirement savings plans with the addition of automatic enrollment and escalation features introduced by the Pension Protection Act of 2006. 

Plan Sponsor Adoption (Hewitt Associates 2008 Employer Survey)

• Currently 44% of companies offer automatic enrollment - up 12% from 2007

• 83% of Plans have an automatic enrollment starting at 3% or higher

• Of Plans that do not offer automatic enrollment, 30% are likely to offer it in 2008

• 44% of companies offer some type of auto escalation in their Plans, up from 31% in 2007

Participant Feedback on Automatic 401(k) Provisions

• 98% of participants who were automatically enrolled in their employer’s retirement plan were glad that their company offered this benefit. ¹

• 79% of participants who opted out of automatic enrollment were glad their company offered this benefit. ¹

• 66% of young workers would feel “grateful” or “optimistic” if employers would automatically enroll them in their defined contribution plans. ²

• 70% of workers say they favor an employer automatically enrolling them in the Plan. ³

• Automatic enrollment increased participation rates for workers in their twenties by 48.3% (25.3% to 73.6%) and 49.1% (37.2% to 86.3%) among workers in their thirties. ³

• 60% of employees are in favor of automatic investments of their contributions. ³

Impact of 401(k) Automatic Enrollment

• 95% of participants agreed that automatic enrollment provisions make saving for retirement easier. ¹

• 85% of Plan participants said they started saving for retirement earlier because of automatic enrollment provisions. ¹

• 100% of employees who participate in their employer sponsored plans reduce their current tax liability

• Automatic enrollment increased participation among minorities and individuals earning less than $20,000 in income. ⁴

• 66% of the Millennial Generation (those born since 1982) who thrive on automatic conveniences,  say “go ahead and do it for me.” ⁵

Though a fairly new approach, automatic enrollment is strongly supported by Congress as well as many employers and employees.  To help ensure that your Plan participants are adequately prepared for retirement, implement automatic enrollment provisions, today! 

Sources

¹ Harris Interactive poll, sponsored by AARP, FINRA and the Retirement Security Project
² Fifth Annual Workplace Report on Retirement Planning
³ Employee Benefit Research Institute’s 16^th annual Retirement Confidence Survey in 2006
⁴ University of Pennsylvania’s Wharton School (Brigitte Madrian) & United Health Group
(Dennis Shea) – Actual results for employees with between 3 – 15 months tenure
⁵ HREonline.com
Hewitt Associates 2008 Employer Survey – survey sample: 190 mid – large size companies