Mike Dullaghan

Small plans tap the power of auto enrollment

Mike Dullaghan, DC Investment Specialist, 5/24/2017

  • Auto-enrollment features are increasingly popular among small defined contribution 401(k) plans
  • Workers finding higher average deferral rates among all plans
  • Both auto enrollment and higher deferral rates encourage increased savings

Workplace retirement savings plans that adopt automatic features such as auto enrollment have found them to be popular among workers, helping to boost participation and savings. The trend has momentum as more small plans are adding auto enrollment, a recent study found.

The percentage of smaller 401(k) plans adding auto enrollment increased to 25.5% in 2015, up from 19% in 2014, according to the Plan Sponsor Council of America (PSCA). Smaller plans were defined as having fewer than 50 participants. For all plans, auto-enrollment adoption increased to 57.5% in 2015 from 52.4% in 2014.

Deferral rates also boost savings

In addition to enrollment, most 401(k) plans are increasing the default deferral rate above the 3% industry standard. Among plans of all sizes, 51.6% increased deferral rates to more than 3%. In 2014, only 40.4% of plans had deferral rates above that level.

Auto features represent a positive trend for workplace savings

Automatic features were introduced more broadly among 401(k) plans after passage of the Pension Protection Act of 2006. Since the PPA was enacted, research has demonstrated that use of auto features increases participation, helps workers save more, and may help savers be better prepared for retirement.   Consistent saving in a workplace plan is a leading factor in achieving retirement savings goals.

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