Many Americans are struggling to save for retirement. Despite 65% of workers ranking retirement as a priority, half of U.S. workers in private industry don’t participate in a workplace retirement plan.1,2 A comprehensive analysis of Principal® data reveals that automated plan features can fundamentally transform retirement readiness.3
While these powerful features aren’t new, there’s a substantial opportunity for broader plan adoption and optimization. Plan sponsor hesitation often stems from thinking employees will push back—yet data shows it typically doesn’t occur as expected. And if expenses are a concern, a holistic view is essential, weighing the cost of benefits against the expenses associated with employees unprepared to retire on time.
Each feature has a specific purpose but together can help achieve a trifecta for retirement readiness. The goal of these features: Automatic (auto) enrollment gets employees into the plan, auto-increase boosts the amount they’re saving, and automatic re-enrollment re-engages employees, providing additional opportunities for saving by bringing them back into the plan.
AUTO-ENROLLMENT
Get employees into the plan
No matter a retirement plan’s size, auto-enrollment is one of the simplest ways to help get employees to participate and start saving. Plans with auto-enrollment have a 37% higher participation rate and are two times more likely to have participation rates of 90% or more.
As auto-enrollment becomes more commonplace, 65% of employees say they now expect this feature when starting a new job.4 Even more revealing, 59% of nonparticipants incorrectly thought they were already participating, with 49% of those mistakenly assuming they had been auto-enrolled.5
Some plans sponsors are concerned that employees will opt out of saving entirely when auto-enrolled. The reality is that most employees not only want but welcome the impetus to start saving. By repositioning enrollment as an opt-out rather than opt-in decision, behavioral inertia becomes an asset rather than an obstacle to getting employees into the plan.
Set strategic default contribution rates
Setting the default contribution rate for auto-enrollment is an important decision with far-reaching implications. Many employees interpret the default rate as a recommendation from their employer, while others don’t engage with the plan, leaving their contribution rate at the default. Either way, these behaviors underscore the importance of a thoughtful default rate.
Finding the optimal default contribution rate is possible and typically higher than what most employers think. While most expect that opt-outs would increase with higher default rate, actual behavior tells a more nuanced story. Data shows that 80% of employees do nothing, even at the highest contribution rates, and overall, 93% of those enrolled remain in the plan regardless of the default contribution rate.
AUTO-INCREASE
Help get employees to save more
The default contribution rate can become an anchoring point, where a plan’s average contribution rate hovers around the default percentage. With default contribution rates commonly at 6% or less, auto-enrollment alone likely won’t get most employees saving enough for a secure retirement. That’s where auto-increase can be a strategic complement—by systematically raising contribution rates annually toward a set percentage amount.
ANNUAL RE-ENROLLMENT
Help get employees back into the plan
Like auto-enrollment and auto-increase, annual automatic re-enrollment can serve as a powerful lever, requiring employees to make an active decision to opt-out of the plan each year.
This strategic approach annually enrolls eligible nonparticipating employees into the plan and adjusts under-contributing participants up to the plan’s default rate. Annual re-enrollment addresses changing life circumstances, those who have stopped contributing but forgot to re-enroll, and those who think they’re participating, but aren’t.
Plan sponsors may want to consider synchronizing re-enrollment with annual performance reviews and compensation adjustments to minimize the perceived impact to take-home pay. Research shows that almost half of nonparticipants express interest in learning more about their retirement benefits during their performance management period—creating a natural opportunity for engagement.8
BEST PRACTICE PLAN DESIGN USING AUTOMATED FEATURES
Plan design using the automated features trifecta can help determine whether employees start saving, keep saving, and save enough for a successful retirement.
Enrollment is just the first step in this comprehensive strategy. Plan sponsors also need to consider how to structure the default contribution rate, and the annual increase parameters, including the cap (the percentage at which increases stop). The overarching goal is to help employees achieve successful income replacement in retirement. Industry standards suggest replacing at least 70-85% of pre-retirement income for a secure retirement. Plan sponsors can establish a specific replacement income target and evaluate if a change in plan design might improve retirement readiness across their workforce.
PUTTING THESE INSIGHTS TO WORK
Automated features leverage behavioral finance to help overcome participant inertia. Small adjustments in how decisions are presented can lead to significant changes in behavior. People often prefer to stick with the default options, either because of habit, procrastination, or the belief that the preset choice is the best. Once enrolled, contribution patterns tend to stay—making initial settings especially important.
Considerations for implementing automated features:
- Set a meaningful default contribution rate. Data shows that 93%+ of enrolled participants remain in the plan, even at higher default rates of 7% or more.
- Implement auto-increase with the right cap. Setting the cap at 15% help get employees to a more realistic income replacement percentage in retirement.
- Use automatic annual re-enrollment to bring eligible nonparticipating or under-contributing employees back into the plan.
- Personalize messages and communicate often throughout the year across multiple channels to reinforce engagements.
- Amplify retirement benefits during onboarding, performance review season, and the benefits election period.
To better understand how thoughtful plan design and the use of the automated features trifecta can help more Americans achieve their retirement goals, reach out to your Principal representative today. They’ll work with plan sponsors and financial professionals to understand workforce needs and create a tailored retirement plan to drive participation and improve savings behavior. Don’t miss out on discovering how these powerful features can facilitate successful retirements.
Automated features may alleviate the expenses of delayed retirement
Saving for retirement takes time and dedication. Employees who haven’t saved enough throughout their career may end up delaying retirement. For the plan sponsor, that can result in:
- Higher labor costs—an older workforce may mean higher labor costs (ex. salary, health care, paid time off).
- Increased healthcare premiums—older people have rates generally 3x higher than their younger counterparts.9
- Lower productivity—employees who can’t retire when they want may experience financial stress resulting in lower productivity.10
- Workforce management challenges—lack of advancement opportunities can reduce the ability to hire new employees, increase wages, and higher turnover.
The effects of delayed retirements underscore the importance of harnessing inertia for better outcomes. Without strong plan design to encourage savings, more employees will likely be unprepared for retirement.
See how strategic plan design can deliver real outcomes
Looking for more? Visit our website for the latest in retirement research and insights.
Footnotes:
1Principal® Insights Communities Research, March 2024.
2 U.S. Bureau of Labor Statistics (BLS), March 2024.
3Findings throughout this communication are based on 9.4 million eligible participants in nearly 37,000 defined contribution plans as of December 31, 2024. All statistics quoted are Principal data as of December 31, 2024, unless noted otherwise.
4Principal® Insights Communities Research, March 2024.
5Principal® Retirement Security Survey—Nonparticipants, December 2023.
6Of the 95% of employees who remained in the plan, 93% remained at or above the default rate, while 2% remained in the plan but at a rate below the default
7 Based on analysis conducted by the Principal Financial Group®, October 2024. The estimate assumes a 40-year span of accumulating savings and the following facts: retirement at age 65; 15% individual rate including employer contributions; Social Security providing 40 percent replacement of income: 4.5% withdrawal of retirement savings; 6 percent annual market returns; 2 percent annual inflation; and 3 percent annual wage growth over 40 years in the workforce. This estimate is based on a goal of replacing about 80 percent of salary. The assumed rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions do not take into account the impact of taxes on pre-tax distributions. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs as savings depends on many factors, including lifestyle, Social Security replacement, and retirement age.
8Principal® Retirement Security Survey—Nonparticipants, December 2023
9 Investopedia.com/how-much-does-health-insurance-cost, June 2024
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Company®, a member of the Principal Financial Group®, Des Moines, IA 50392.
Principal®, Principal Financial Group®, and Principal and the logomark design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and service marks of Principal Financial Services, Inc., in various countries around the world.
© 2025 Principal Financial Services, Inc.
4291432-032025
Principal Financial Group is a global financial company offering retirement, insurance, and asset management solutions to individuals, businesses, and institutions. Headquartered in Des Moines, Iowa, Principal helps millions plan, insure, invest, and retire, with a focus on long-term financial security. Known for innovation and customer-focused strategies, Principal operates in more than 80 countries with a commitment to helping clients achieve financial wellness.
