Are Auto Engagements Over?

A new survey finds that while some auto-features may have peaked, others are just beginning to get started.

Use of automatic enrollment increased slightly from a year ago (64.9% in 2016 versus 61.0% in 2015), but was significantly ahead of the 52.1% who had that option in place as recently as 2012, according to Callan’s 10th annual Defined Contribution Trends Survey. The vast majority use it primarily for new hires, although one in five employers (21.6%) say they have auto-enrolled existing employees (via one-time sweeps or periodic sweeps), up from 17.7% a year ago.

That said, no plan sponsor respondents were very likely to add auto enrollment in 2017. The most common reason cited was that it was unnecessary (34.2%, participation was adequate), followed – and cited by 23.7% each – by cost concerns and lack of support by upper management. High turnover was noted by 18.4%.

Escalation Escalates

Nearly four-fifths of plans that have automatic enrollment also offer automatic contribution escalation (77.0%), and Callan noted that the prevalence of automatic contribution escalation (63.2%) increased significantly compared to previous years: 2015 (45.9%), 2014 (42.1%), and 2013 (42.9%). Among plans not offering automatic contribution escalation, 56.6% said they are somewhat or very likely to adopt this feature in 2017.

In 2016, just over one in five plan sponsors indicated they had ever engaged in an asset re-enrollment – defined by Callan as requiring all participants in the plan to make a new fund selection or else be defaulted into the default investment option. Of the plans that have engaged in a re-enrollment, the vast majority (85%) did a one-time re-enrollment versus 15% engaging in multiple re-enrollments. Few plans (3.4%) report that they are planning a re-enrollment in the next 12 months – primarily because plan sponsors believe participants would object. As in prior years, “changes to the fund lineup” is the most common motivation for the re-enrollment (62.1%).

Roth Rates

The prevalence of Roth contributions in DC plans increased, from 61.6% in 2015 to 67.6% in 2016, and somewhat higher in 401(k) plans, where 77.6% offer a Roth contribution feature (compared to 66.7% in 2015). While 21.6% do not allow (and are not considering) Roth-designated accounts, 9.0% of plan sponsors are considering them over the coming year.

The percentage of plan sponsors that have a policy for retaining retiree/terminated participant assets ticked up in 2016 to 48.7%.

Half of plan sponsors offer retirement income solutions, up slightly from 46.3% in 2015. Still, plan sponsors indicate that providing access to their defined benefit plan is the most common retirement income solution offered (27.4%). Very few plans offer in-plan guaranteed income for life products such as in-plan annuities (3.8%) or longevity insurance (1.9%) – and are not likely to offer these in 2017.

Plan sponsors cite a number of reasons for being unlikely to offer an annuity-type product in the near term, primarily because they feel it is unnecessary or not a priority, though being uncomfortable or unclear about the fiduciary implications is also high on the objections list.

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