After a surge in adoption following passage of the Pension Protection Act (PPA), automatic enrollment designs seem to have plateaued in industry surveys – but what are NAPA Net readers seeing?
It may not show up in the macro statistics, but nearly three-quarters of this week’s respondents said that automatic enrollment is still being adopted by the plans they work with. One reason the trendlines might not reflect that movement is that, as one reader noted, it’s being adopted by “a single plan every couple of years.”
The trendlines notwithstanding, earlier this year automatic enrollment was one of the most prevalent plan design concepts being “pitched” by NAPA Net readers.
Objections Raised
But if the pace of adoption isn’t all that inspiring these days, what reasons do plan sponsors give for taking a “pass”? The biggest pushback, at least among the plans this week’s respondents work with, is that they are simply “not that paternalistic” (67%). Other objections included (more than one could be selected):
- 56% - worried about the expense of the extra match associated with higher participation
- 33% - no need to boost participation
- 27% - worried about the extra expense of more participants
Among other reasons cited, one reader explained that, “they know of a few employees that like to complain and don't want to give them any more issues,” while another said their plan sponsor clients were “worried about not getting payroll set up properly.” Another reader said their clients said that automatic enrollment “seems too imperialistic.”
Objection Response
We also asked readers to share their response(s) to those objections:
“If they are already safe harbor match the clients are saving money on those who don't contribute; if doing 3% safe harbor, no difference. If they can't make the commitment for safe harbor, I do suggest it can help participation to boost owner contribution. Most feel it is not their responsibility to make their clients contribute. A big reason small owners are going to SIMPLE IRA.”
“We have a report for that,” explained another reader. “Plan Design Optimization Report actually shows them both how to stay within their budget yet add or increase auto enrollment features and what impact such changes can mean to retirement outcomes of their participants.”
“I always emphasize the importance of monitoring the newly eligible employees on enrollment dates and ask the payroll person to call me with any questions. Getting rehired employees set up for auto enrollment is also a problem. Regardless of how detailed the payroll people are there always seems to be a few employees who get missed.”
“To counter the objections, show data and research about peers in the industry, lack of retirement readiness, the cost of having employees that are working longer into their life because they are not prepared for retirement (i.e. increased healthcare cost, cost of having employees worried about finances and retirement instead of focused on their work, etc.)”
“The best way to mitigate your liabilities is to get your employees to retirement with enough money. Success is your best defense,” explained another.
“We let the math speak,” one reader said. “We run scenarios assuming 80-100% participation to show the effect on budget, and in some cases, the difference is very small, or at least manageable... sometimes the monetary hurdle is just too great to overcome.”
One reader noted that “side-by-side comparison of current facts with alternatives” had been effective.
“We have found that by addressing all of the concerns, pro and con, just as we do with any other plan provision, it allows the committee to make an informed decision... either way... most plans have rejected the auto features, not because of budget restraints, but because of real or perceived operational problems that can, and do occur with this feature,” noted another.
As a cautionary note, one reader noted that, “Every auto enrollment plan I have worked on has had payroll problems with getting participants set up in payroll timely. Also, just had a $10M plan adopt auto enrollment a year ago and was at an annual meeting recently and the client wanted to know why the plan expenses had increased and it was because a result of the auto enrollment was a lower average account balance which resulted in the investment company fees being increased for all participants.”
One reader said, “I'm having great success implementing auto enrollment with start-up plans.”
The real thing to keep in mind though, may be as one reader explained, “as with any other ‘good idea,’ the devil is in the details!”
Thanks to everyone who participated in our weekly NAPA Net reader poll!
Got a question you’d like to run by your fellow readers? Want to get a real-world perspective on an issue? Feel free to post it in the comments section below, or email me directly (and anonymously) at [email protected].
