In an era where the traditional defined benefit plans are becoming a thing of the past, Generation X and Generation Y employees are starting to take retirement savings in defined contribution plans seriously. In a recent survey, Gen X and Gen Y savers (those born between 1965 and 1995) now are making up more than half of the participants in defined contribution plans. As Baby Boomers retire, this increasing trend is likely to continue. However, the total amount of assets held by these generations is still under half of the total defined contribution plan assets. While the number of the Gen X and Gen Y savers are continuing to rise, employers can look for ways to help increase participation of those generations in retirement savings and boost their assets for retirement.
Studies have shown that employees regard employers that offer retirement savings plans higher than those that don’t provide any plan. Employers can assist their employees in choosing to save for the future by opting to use automatic enrollment features on their plan. Most employees either lack the skills or the time to invest into their retirement. Automatic enrollment features will assist employees in planning for retirement and also increase plan participation rates.
According to the Employee Benefits Research Institute, the proportion of private sector employers offering a 401(k) has risen from 72% in 2007 to 82% in 2012. The average participation rate in these 401(k) plans is about 72%. When auto-enrollment features are added to plans, participation rate rises to 92%.
With auto-enrollment, participants are still allowed to opt out, but few participants either due to procrastination or other factors. Employers also can benefit, too, from auto-enrollment. This feature can reduce time in administration of the plan, since this process is standardized for all employees. It can also reduce the cost per participant of the plan. With more employees enrolled, there is a potential savings in cost per participant. Auto-enrollment is a win-win situation for both the employer and participant.
For questions or to discuss auto-enrollment, contact a member of our ERISA group.
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