How High Should Auto-Escalation Go in 401(k) Plans?
In this brief interview from the 401(k) Summit in Las Vegas, John Sullivan speaks with Anne Lester of J.P. Morgan Asset Management about participant behavior and trends in 401(k) plans.
Lester highlights a key insight: while auto-enrollment is effective in getting participants into retirement plans, many remain at the initial low contribution rate (typically 3%) indefinitely if there is no auto-escalation. This stagnation can severely limit long-term savings potential.
To address this, Lester advocates for automatic escalation of contributions, ideally up to 10% or more. She notes that while some plan sponsors fear pushback, data shows that participants generally support higher default contribution increases when properly implemented.
The conversation also touches on target-date funds (TDFs) and how they help maintain long-term investment discipline, especially during market volatility. These funds are effective partly because they simplify decisions and are managed by professionals, which encourages participants to stay invested.
Finally, Lester discusses J.P. Morgan’s integration of anonymized spending data from 5.5 million households, allowing the firm to better tailor products to participant needs as they age. This reflects the growing importance of data analytics in product design.
