More companies than ever before are automatically enrolling workers in 401k and similar defined contribution plans.
And, with companies better understanding the role inertia plays in retirement savings, they’re enhancing their DC plans in other ways to encourage greater saving, according to Alight Solutions, a provider of benefits administration and cloud-based HR and financial solutions.
The company surveyed 333 large U.S. employers, representing 10 million workers and $775 billion in retirement assets, and found that 68 percent of companies automatically enroll workers in 401(k) plans, up from 58 percent in 2015.
Companies are also nudging savings rates higher by defaulting workers into the plan at higher rates.
Currently, 33 percent of companies automatically default workers into the plan at a savings rate of 6 percent of pay or higher. This is nearly as popular as a 3 percent default rate (offered by 37 percent of employers), which has historically been the most common default rate, according to the company.
Firms are also driving higher savings rates by automatically escalating contributions over time. Nearly three quarters (74 percent) of companies with automatic enrollment also have automatic contribution escalation, in line with 2015 (73 percent) and up significantly from 28 percent a decade ago.
Hand-in-hand with this change is a trend to set higher escalation thresholds. In 2017, more than two-thirds (68 percent) of companies set their escalation threshold at 10 percent or higher, up from 43 percent in 2007.
“Companies realize that they need to make it easier for their people to save for retirement, whether it’s simply getting workers into the plan or helping them save even more,” Rob Austin, director of Research at Alight, said in a statement. “Automatic features harness the power of inertia by taking the workers who may not take action and making sure that they begin to save today for retirement. This helps increase the chance that more people will be on a favorable path to a more secure financial future.”
Automatic features can help workers with setting their savings rates, but they don’t necessarily help when it comes to investment decisions, it adds.
According to Alight’s data, more companies are adding personalized help tools or products and services that go beyond target date funds to make saving and investing easier for their employees:
- 61 percent of companies provide one-on-one financial counseling, up from 22 percent in 2007.
- 60 percent offer online guidance, compared to 18 percent in 2007.
- 58 percent of companies offer managed accounts, up from 11 percent in 2007.
“401(k) plans are now the primary retirement savings vehicle at 83 percent of companies, which means more employees than ever before are shouldering the responsibility for saving and investing decisions,” Austin concluded. “Tools like financial counseling, online guidance, and managed accounts all provide investment recommendations that can be tailored to each worker’s unique financial situation to make saving for retirement simpler.”