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Are You Still Avoiding Automatic Features!?

03/12/2019
By Jack Towarnicky

PSCA’s 61st Annual Survey: 61.2 Percent of Plans Deploy Automatic Enrollment

PSCA’s 61st Annual Survey showed that 61.2 percent of companies deploy automatic enrollment features, typically only limited to new hires. The goal is to boost participation in their 401(k) plan. Early adopters of automatic features often used a default deferral rate of 2 percent of pay. After the Pension Protection Act of 20061 and associated regulations, the typical default rate became 3 percent of pay. Today, most plan sponsors use a default contribution rate in excess of 3 percent. 72.6 percent of plans with automatic enrollment also facilitate increasing deferrals.

I have blogged and written extensively regarding automatic features.2 In my last plan sponsor role, we adopted automatic features and deployed them starting April 1, 2007. Unlike most plan sponsors, we:

  • Adopted automatic features for every worker who was not participating, 
  • Adopted automatic escalation for every worker who was not receiving the full employer match, and later, for every worker who was not contributing the target amount, and 
  • Deployed automatic features perennially, meaning every worker who was not contributing at the target level was either automatically enrolled or automatically escalated each year. 

The results:

  • A near doubling of the average deferral percentage among non-highly compensated employees, and 
  • In almost every year since 2007 (that is 12 years,) the plan achieved:
    - More than a 95 percent participation level, and
    - More than 95 percent of participants receive the full employer matching contribution. 

You, too, can achieve these results.

If you haven’t adopted automatic features, send me a note to explain the impediments you face. Many plan sponsors have shared with me that the impediment is one of increased cost.

If you have adopted automatic features but haven’t achieved comparable results, send me a note and I can provide details on exactly what we did and how we did it. I can be reached at jtowarnicky@usaretirement.org.


1Pension Protection Act of 2006, Pub. L. 109–280, 8/17/06

2Nothing is Better for Thee Than Me, 8/22/18, Accessed 1/2/19 at: https://www.psca.org/blog_jack_2018_39 See also: Known: How Your 401(k) Can Make the Leap from Good to Great (1st of 2 Articles), 9/4/18, Accessed 1/2/19 at: https://www.psca.org/blog_jack_2018_41 See also: Defeating Egocentric Bias – Meeting Workers Where They Are (2nd of 2 Articles), 9/12/18, Accessed 1/2/19 at: https://www.psca.org/blog_jack_2018_42

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