Younger workers seem to be benefiting from the automatic plan design features incorporated in the Pension Protection Act — but may be leaving company match money on the table.
That’s the picture that emerges from an analysis of data from Aon Hewitt, which finds that many workers in their 20s and 30s are participating in 401(k) plans, but not saving enough to take full advantage of their employers’ 401(k) match.
In fact, Aon Hewitt's analysis of more than 3.5 million employees eligible for DC plans shows that while the average participation rate of young Millennial workers (age 20-29) is 73% — and somewhat higher (77%) for older Millennials (age 30-39) — nearly 40% of the former group and about a third (21%) of the latter are saving at levels that are below their employers’ company match thresholds.
Industry surveys indicate that many plans with automatic enrollment use the starting default contribution rate of 3% set out in the PPA’s safe harbor default. However, those industry surveys also suggest that many plans with auto-enroll provisions don’t accompany that default with the automatic annual contribution rate acceleration also outlined in the safe harbor. A previous report from Aon Hewitt notes that while 59% of plans utilize automatic enrollment, more than 50% of these plan sponsors set the default savings rate below the plan’s match threshold.