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Numbers Don’t Lie on Auto-Enrollment

Numerous organizations have conducted surveys on compulsory enrollment in retirement plans, and the trends are clear: Automatic plan features work — at least when plan sponsors offer them.

Writing in the Spring issue of NAPA Net the Magazine, Nevin Adams says that there is a mountain of evidence that automatic enrollment (AE) is the most effective way to get employees to save for retirement. He cites a Vanguard study that says 91% of new hires participate in their new employer’s plan under AE, as opposed to just 42% of new hires who enroll in voluntary enrollment (VE) plans.

According to Adams, the numbers are even more stark when talking about low-income savers, who largely do little to no saving at all if they don’t have a plan at work, and who are also the least likely to participate in a retirement plan at all. Adams writes how, in the Vanguard report, 87% of workers making under $30,000 a year at an employer with an AE plan enrolled in it, while just 22% of low-income workers at an employer with a VE plan enrolled in the plan. 

Voluntary participation rises dramatically with income, Adams says, with 65% of workers earning $75,000-$100,000 enrolling in a VE plan, but AE plan enrollment is far more popular across the board.

Auto-enrollment plans clearly work, Adams writes, but yet many workers, especially the most economically vulnerable ones, remain shut out, even as the features gain popularity. To read Adams’ full column, including his thoughts on TDFs’ rapid growth in popularity, especially among younger workers, click here and select the “Starting ‘Points’” link. To view the full 76-page Spring 2015 issue, click here.