One State’s Experience With Auto-Enrollment
Sure, it’s only one state, but it’s a window into human behavior and indicative of what happens with opt-out versus opt-in retirement plan processes.
A new research analysis finds that enactment of legislation to automatically enroll new South Dakota public employees in the Mount Rushmore State’s supplemental retirement saving plan “substantially increased participation.”
The data indicate that first-year participation rates for government employees with automatic enrollment exceeded 90 percent, while the rate at public employers without automatic enrollment averaged just 5 percent.
The analysis also finds, however, that the proportion of workers contributing to the SRP among those automatically enrolled declines with additional years of employment.
For example, for those hired in 2010 who were automatically enrolled, the participation rate fell from 92.3 percent in year of hire to 80.5 percent in 2016.
In contrast, the participation rates for those not automatically enrolled rise with years of service, but are still well below the rates of those automatically enrolled.
These findings are contained as a new issue brief from the Center on State and Local Government Excellence.
In 2009, South Dakota became one of the first states to add automatic enrollment to its SRP. Previously, state and local employees were offered the opportunity to enroll in the SRP but relatively few public employees voluntarily enrolled.
For example, between 2005 and 2009, fewer than 3 percent of newly-hired workers enrolled in the SRP during their first year of employment.
The automatic enrollment legislation was adopted for two primary reasons:
There was broad concern about the low SRP participation rate. Prior to 2008, only about 20 percent of eligible public employees in South Dakota were actively participating in the SRP.
Following reductions to the SDRS pension benefits, there was concern that public employees’ future retirement income from their pension and Social Security might not achieve a target of at least 85
Under the automatic enrollment features of plans, the plan sponsor must specify a default contribution rate and a default investment option for the plan where the contributions are deposited. Employees have the ability to opt out of the plan, change their contribution rate, and move from the default investment into other investment products offered by the plan.
Robert L. Clark is the Zelnak Professor of Economics and Management in the Poole College of Management at North Carolina State University. A leading scholar in labor economics and retirement policy, his research examines pensions, retirement systems, workforce aging, and the economic security of older Americans. Over the course of his career, Dr. Clark has advised government agencies, corporations, and international organizations on retirement planning, pension reform, and the design of sustainable benefit systems.
Joshua Franzel is a senior leader with extensive experience in public sector research, policy, and organizational strategy. He currently serves with the National League of Cities (NLC), where he advances initiatives supporting local governments, city leaders, and community development nationwide. Prior to joining NLC, Dr. Franzel was President and CEO of the Center for State and Local Government Excellence (SLGE), where he guided nationally recognized research on workforce, retirement, health care, and financial sustainability issues impacting state and local governments.
Denis Pelletier is a faculty member at North Carolina State University, where he specializes in economics and finance with a focus on time series econometrics, empirical asset pricing, and risk management. His research has been published in leading journals, contributing to advancements in financial econometrics and applied quantitative methods. At NC State, he is committed to both rigorous scholarship and high-quality teaching, preparing students for careers in academia, industry, and government. Prior to joining NC State, Dr. Pelletier held faculty positions at the University of British Columbia and the University of North Carolina at Chapel Hill. He has also collaborated with financial institutions and research organizations, applying econometric models to complex problems in investment strategy, portfolio allocation, and market risk. His previous professional experience includes consulting and project leadership in the financial services sector, where he integrated academic research with real-world financial decision-making. Dr. Pelletier is recognized for bridging theory and practice, advancing empirical methods in finance, and mentoring the next generation of scholars and practitioners.
