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Beyond the Basics – Employers Build on Impact of Automatic Savings Features

New research from the Plan Sponsor Council of America (PSCA), part of the American Retirement Association, finds that more plans with automatic enrollment features are increasing the traditional defaults, helping lift savings to record levels.

“Automatic enrollment has been one of the key enhancements to plans that has led to higher participation rates over the past decade,” notes Research Director Hattie Greenan. “That’s the first step to building better retirement outcomes for employees.”

Higher starting point

While the survey – the longest-running of its kind – found that the adoption of automatic enrollment features may be slowing, plans that have embraced this feature are building on its success in expanding participation to help workers save more for retirement.  Specifically, while plans tended to set the default participant savings rate at 3 percent (the safe harbor starting point for such programs articulated in the Pension Protection Act of 2006), the survey finds that is changing – in 2018, more than 60 percent of plans with automatic enrollment used a default deferral rate above 3 percent.

Further, the percentage of plans with automatic enrollment using a default deferral rate of 6 percent of pay increased by 25 percent – from 23.8 percent in 2017, to 29.7 percent in 2018.

Plans with automatic enrollment are also making it easier for participants to increase the amount they save every year. Fully 80 percent of automatic enrollment plans include features that facilitate an increase in the savings rate; some automatically raise the deferral rate for all participants, others raise it for those who are under-contributing only, while some simply provide that option to participants.

The combination of these plan design enhancements – coupled with steady increases in contributions made by employers on behalf of their workers – have resulted in record savings rates for those with access to these programs.

“Moving up the default deferral rate, and automatically escalating the percentage of pay saved over time, have both contributed to the increase in employee contribution rates, and higher account balances,” noted Greenan. “Participants in plans whose sponsors have chosen to add these features are responding positively to their inclusion, and the features are serving them well.”

About the Survey

The 62nd Annual Survey of Profit Sharing and 401(k) Plans, also covers topics such as monitoring investment policy statements, alternative investment options, company stock, distribution and withdrawals, participant education and communication, recordkeeping and other plan administration practices. The report includes a comprehensive executive summary that examines the 10-year trends of key plan benchmarking data points. To connect with Research Director Hattie Greenan about the survey’s findings, contact her at [email protected].

PSCA’s 62nd Annual Survey reflects the 2018 plan-year experience of 608 DC plan sponsors. For more information or to order a copy visit: https://www.psca.org/62nd_ASReport