Though the accepted wisdom is that auto-enrollment is a good thing, the pace of plans adopting the feature appears to be slowing down. Unlike TDFs, which seem to be on a non-stop growth pattern, plans that have not adopted auto-enrollment seem to be exhibiting “stubborn resistance” for a variety of reasons, with smaller plans less likely to use auto-enrollment.
According an Aon Hewitt study, 59% of plans used auto-enrollment in 2013, compared with 56% in 2012 and 19% in 2005 (before the 2006 PPA). Only 25% of Fidelity plans use auto-enrollment, compared with 34% for Vanguard plans and 61% for T Rowe plans, which most likely reflects the size of the plans they record-keep. Plan sponsors with both DC and DB plans are more likely to adopt auto-enrollment, according to Aon Hewitt, with 64% employing it — compared with just 53% without a DB plan.
So why not adopt auto-enrollment? Cost is the biggest issue, especially if there’s a match. But some firms don’t want to force-feed employees, preferring that they make active choices instead. Other plans already have high participation rates. The unintended consequences of auto-enrollment include lots of low-balance accounts, which can drive up costs for the record keeper — costs which they will most likely pass along to other participants. In addition, as people change jobs, they could end up with a string of small balances at multiple employers.
