Higher Auto-Defaults Dominate in Many DC Plans

401k, retirement, DC plans, auto default
It really makes it much easier.

The adoption of automatic enrollment features may be slowing, but plans that have embraced it are making huge strides in expanding participation to help workers save for retirement.

Specifically, the latest annual survey from the Plan Sponsor Council of America (PSCA) finds that while the default participant savings rate is 3% (the safe harbor starting point for such programs), it’s changing—and in 2018 more than 60 percent of plans with automatic enrollment used a default deferral rate above 3 percent.

Further, the percentage of plans with automatic enrollment using a default deferral rate of 6% of pay increased by 25%—from 23.8% in 2017 to 29.7% in 2018.

Plans with automatic enrollment are also making it easier for participants to increase the amount they save each year. Fully 80% of automatic enrollment plans include features that facilitate an increase in the savings rate; some automatically raise the deferral rate for all participants, others raise it for those who are under-contributing only, while some simply provide that option to participants.

Record savings

The combination of these plan design enhancements—coupled with steady increases in contributions made by employers on behalf of their workers—have resulted in record savings rates for those with access to these programs.

“Automatic enrollment has been one of the key enhancements to plans that has led to higher participation rates over the past decade,” Research Director Hattie Greenan said in a statement. “That’s the first step to building better retirement outcomes for employees.”

“Moving up the default deferral rate, and automatically escalating the percentage of pay saved over time, have both contributed to the increase in employee contribution rates, and higher account balances,” Greenan added. “Participants in plans whose sponsors have chosen to add these features are responding positively to their inclusion, and the features are serving them well.”

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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