Strong Endorsements for Auto-Enrollment and Escalation
“Auto” features — enrollment and escalation, that is — have received fresh boosts in recent reports concerning private as well as public-sector employers.
The National Association of Government Defined Contribution Administrators, Inc. (NAGDCA) in its report, “Using Auto-Enroll to Improve Participant Outcomes
,” argues that when employers offer auto-enrollment, they “can set an important precedent” and that by doing so, they will be “impressing upon employees how important it is to begin saving for retirement as soon as possible.”
Prudential Retirement has found that the NAGDCA is on to something. Two-thirds of the 1,000+ participants in 401(k), 403(b) and 457 plans who responded in a study by Prudential Retirement and who are familiar with auto-enrollment gave it a strong vote of confidence in the practice, according to Prudential Retirement in “The Ease of Automation and Guaranteed Lifetime Income: What participants want from their defined contribution retirement plans
.” That 66% said that auto-enrollment ensures that they save for their retirement, invest well and that they will be financially secure in retirement.
Not only that, auto-enrollment proves attractive enough that it has staying power, according to the NAGDCA, which says that it found that 90% of employees opt to continue participating in auto-enrollment.
And according to the reports, not only do those familiar with auto features believe in them — they also act on sentiment. Prudential Retirement reports that their contribution from their pay to their retirement plans is higher than are those by people who do not have experience with those features by a median of 43%.
NAGDCA endorses auto-enrollment’s younger sibling, auto-escalation in its report. It says that “research has found that including auto-escalation is necessary to fight participant inertia” and that auto-escalation “also becomes very important because employees may conclude that if 1% was the suggested rate by the employer, then it must be sufficient.” It also cites a Society for Human Resource Management study in which 55% of employees expressed support for automatic increases in the amounts they contribute to their retirement plans.
The reports further provide fresh evidence of the importance of workplace retirement plans. Employment-related retirement plans were the most frequently cited source of retirement income on which plan participants told Prudential Retirement that they expect to depend. In addition, more than 75% of plan participants familiar with guaranteed lifetime income solutions told Prudential that it is very important that employment-related plans include such features.