Talking with plan sponsors, much (though not all) of the resistance to innovative plan design shifts is predicated on concerns about how workers will respond. What have NAPA Net readers experienced?
For example, how will workers who have for years resisted (or put off) signing up for the 401(k) respond if they are automatically enrolled? What will happen if you double the default contribution rate to 6%? And how about reenrolling existing investment selections into age-appropriate target-date funds?
These are the kinds of plan design changes that ostensibly help workers’ retirement security – but about which, at least in the short run, there is concern about backlash.
Well, among this week’s reader poll respondents, more than two-thirds (68%) say that in plans that have implemented automatic enrollment, “reaction has been appreciative for the very most part,” and for another quarter, “there hasn’t been any reaction at all.” As one reader commented, “Concerns over harsh reaction were mitigated by education campaigns. We’ve monitored the amount of negative reaction and had zero complaints over 35,000 participants.” Though, it should be noted that among the remaining 7% of respondents, there had been a “harsh” response from some worker(s).
Preexisting ‘Conditioned’
Surveys indicate that a majority of plans which have embraced automatic enrollment have done so for new hires, though not existing – a distinction doubtless borne from a concern both about cost (say, of the additional employer match) and “brushback” from workers who have previously, and perhaps repeatedly, chosen not to participate.
But here again, the responses were largely either “reaction appreciative for the most part” (61%) or “there hasn’t been any reaction” (22%), though the “harsh” response to this move was higher than automatic enrollment alone (17%). “There has been backlash from the typical employees who hate on everything. No surprises, just the usual suspects,” observed one reader. But another pointed out one instance of their experience involving a plan with “…a large number of Hispanic employees that didn’t understand the feature or that they could opt out.”
Higher Ups?
What about situations involving an automatic deferral rate higher than the customary 3%? Here again, more than half (59%) said the opt-out rate was the same as with a 3% default, and 17% had seen a higher opt-out rate – but a quarter said the opt-out rate they experienced was actually less than with 3%.
We also asked about plans that have incorporated lifetime income projections on participant statements... and found a more nuanced picture. Just over 4 in 10 (42%) reported a “mixed reaction – some participants demotivated, others spurred to save more,” as one respondent said, while another quarter said that participants didn’t seem to have noticed.
“Never saw demotivation,” noted one reader. “If anything, they were motivated to see how they could improve their outcome.”
The remainder of this week’s respondents said they hadn’t worked with plans that included retirement income projections.
We found another nuanced picture when looking at the experience of reenrolling existing participants into age-appropriate target-date funds. A third explained that “for the most part, participants had been appreciative,” and another quarter (25%) had experienced a “mixed reaction,” with some participants irked and others appreciative. About 17% noted that participants didn’t seem to have noticed, and half that number said that, for the most part, participants whose investments were changed were irked, despite the ability to opt out. The rest hadn’t worked with plans that had done a reenrollment.
One reader noted that “there is a concern that if this ‘re-enrollment’ happens, the participant is no longer making ‘their’ choice... this could pose a risk to the plan sponsor.”
Other Comments
“Most plan sponsors are concerned about a negative reaction to automatic enrollment but I have yet to have a plan when they implement auto features with a negative reaction,” commented one respondent.
“In one case where we changed the matching formula to encourage more participation, there was some backlash (needed to contribute 2% to get 6% from employer, changing to 100% up to 6%),” explained another reader, who said that while it was “billed as most people need to save 10% or more to hit the retirement they want. It kind of worked, but it didn’t feel great temporarily.” However, they went on to note that, “a year later and no one cares. It’s frustrating with auto-enrollment when the employer makes the assumption that the employees can't afford it. Let’s let them make that decision on their own!”
One TPA respondent commented that they “occasionally attend review meetings with the plan sponsors and their advisors,” and that “in those meetings I am finding out the employees are appreciative of both automatic enrollment (even at 6%, and with auto-increase) and target-date funds. It seems they like the idea that the plan sponsor is looking out for their retirement, and as a participant they don’t even have to do anything.”
“Each plan sponsor must make decisions for their participants, not just because it is a trend, but to further empower the employee/participant,” another noted. “Trends usually benefit the recordkeeper, advisor or plan sponsor, not necessarily the participant.”
Thanks to everyone who participated in our weekly NAPA Net Reader Poll!
