Plan Sponsors Adopting Higher Default Savings Rates

As plan sponsors gain a better understanding of the role inertia plays in retirement savings, a new survey finds that an increasing percentage are adopting a higher default auto-enrollment savings rate for workers in their DC plans.

Survey results from Alight Solutions’ 2017 Trends & Experience in Defined Contribution Plans study finds that 33% of companies automatically default workers into the plan at 6% of pay or more, up from 11% in 2009.

Alight emphasizes that this higher rate is now nearly as prevalent as the 3% default rate offered by 37% of employers. While 3% has historically been the most common default rate, the findings show that the overall percentage of employers adopting that rate is down from 54% in 2009.

Auto-Enrollment Use Rising Steadily

After plateauing for several years, automatic enrollment among large employers also continues to rise. Alight’s survey, which included 333 large U.S. employers representing 10 million workers and $775 billion in retirement assets, found that 68% auto-enroll their workers in their 401(k) plans — a steady climb from the 58% that reported doing so in 2015 and 34% in 2007.

Auto-Escalation About the Same

Automatic contribution escalation is another enhancement that plan sponsors continue to embrace to help drive up savings rates. While the findings show similar percentages of companies between 2017 (74%) and 2015 (73%) using auto-escalation, those numbers are up from 28% a decade ago.

Auto-escalation thresholds are also trending higher, according to the findings. In 2017, more than two-thirds (68%) of respondents to the survey set the threshold at 10% or higher, up from 43% in 2007.

“Companies realize that they need to make it easier for their people to save for retirement, whether it’s simply getting workers into the plan or helping them save even more,” explained Rob Austin, Director of Research at Alight. “Automatic features harness the power of inertia by taking the workers who may not take action and making sure that they begin to save today for retirement.”

Roth Contributions Becoming Standard

An increasing number of plan sponsors are allowing for Roth contributions, making tax diversification possible for more plan participants. More than three-quarters (77%) of respondents to the survey allow for Roth contributions in their DC plans — up from 58% in 2015. In addition, 43% of employers now offer in-plan Roth conversions, according to the report.

Other Popular Tools

Companies are also enhancing their DC plans with other features as a way to encourage greater saving. “Tools like financial counseling, online guidance, and managed accounts all provide investment recommendations that can be tailored to each worker’s unique financial situation to make saving for retirement simpler,” says Austin.

According to Alight’s data:

  • 61% of companies provide one-on-one financial counseling, up from 22% in 2007;
  • 60% offer online guidance, compared to 18% in 2007; and
  • 58% of companies offer managed accounts, up from 11% in 2007.

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