Misbehaving Savings - Part 3 of 5

Responding to intriguing participant requests June 2007 
You Can Lead A Horse to Water, But…

During my three-plus decades in plan sponsor roles (1979-2010), I often studied workers’ savings elections and took the opportunity to frequently ask them to explain their contribution, investment and withdrawal decisions. In prior blog posts, I shared the first and second of five such encounters.

In April 2007, we completed our initial automatic enrollment. Unlike most employers, then and now, we did not limit automatic features to new hires. Instead, we defaulted every worker to contribute 3 percent of pay if they were not contributing at least that amount. And, since the match was 50 percent of the first 6 percent of pay contributed, anyone contributing at least 3 percent but less than 6 percent was “auto escalated” one percent of pay.

We applied those provisions perennially – that is, once each year, we would apply the automatic features to everyone who was not contributing at the target levels. Later, the default for automatic enrollment was increased to 6 percent and the cap on automatic escalation was increased to 12 percent. When people complained, “Just how many times do I have to tell you I don’t want to participate in this plan?” my response would always be the same, “Just once a year.”

Anyway, looking back on the results of that initial activity, we noticed that about 5 percent of workers had opted out. We patted ourselves on the back – 95 percent were contributing! And, in fact, the percentage has continued at more than 95 percent ever since!

But, one reviewer noted that there were still approximately 25 individuals who opted out – even though they had five years of service and they were already age 59 ½ or more. That is, they were 100 percent vested and were eligible for an in-service distribution based on their attained age. As I had in the past, before we adopted automatic features, I took it upon myself to send each an email. This was followed by a personal, snail-mail letter confirming that they were “leaving money on the table.”

When almost all failed to take action, I sent a second snail-mail letter to their home address where the envelope was marked: “How would you like a 3 percent pay increase?!” In that letter, I highlighted and reconfirmed that they could defer 6 percent of pay, get an immediate 3 percent vested employer-matching contribution and on the Monday after each payday, they could request a distribution of their entire account balance.

Voila! A 3 percent pay increase.

Even then, only a few started to contribute.