OUR THOUGHTS ON:

Auto-Enrollment Pushes Retirement Plans Higher

401(k) Plans|ERISA

By Patrick Kerns

Plan assets for 401(k) plans and similar types of defined contribution plans have topped $7 trillion due to continued growth in employee contributions. Part of this increase is not due to employees consciously saving more; it is due to the continued growth of both auto-enrollment and auto-escalation features in a growing number of retirements plans.

Auto-enrollment plans enroll workers automatically at a fixed percentage until the worker changes their contribution percentage. According to Plan Sponsor Council of America’s 59th Annual Survey of Annual Profit Sharing and 401(k) Plans, in auto-enrolled plans 89% of employees are participating versus 75% in non-auto enrolled plans, and auto-enrolled plans now make up about 58% of all plans. This significant gap in participation could lead to a significant difference in the amount your employee’s have saved for retirement. In addition to higher participation, auto-enrolled plans also have a greater savings rate – 7.2% compared to 6.3%-despite more than half of these plans having an auto-enrollment rate of 3%.

In addition, auto-escalation, which is still not yet nearly as popular as auto-enrollment now comprise about 25% of all plans. This can assist participants over the long-run by automatically boosting their contribution rate based upon factors such as age, level of compensation or other factors set by the plan.

Hattie Greenan, Director of Research and Communications for Plan Sponsor Council of America, notes that, “by designing plans that include features such as automatic enrollment and options such as target date funds and Roth 401(k), plan sponsors are helping to advance the interests of all participants and grow America’s retirement savings.” As traditional defined benefit plans are no longer an option for most, improving the savings rate for defined contribution plans continues to grow in importance. 

If you have any questions about defined contribution plans, please contact us and visit our Employee Benefit Plan services page to learn about our ERISA services.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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