NBCUniversal—Profile of a Successful Automatic Plan
NBCUniversal started its retirement savings plan from scratch in early 2011. It has grown to $340 million—and has a 96.6 percent employee participation rate, in large part due to automatic features.
New employees are automatically enrolled into the target-date fund series at a 3.5 percent default rate. The auto enrollment takes place 30 days after hiring.
The deferral rate automatically escalates one percentage point a year to a maximum of 6.5 percent.
NBCUniversal's annual 401(k) plan contribution for a new employee is between 5.5 percent and 8.5 percent of pay.
Auto 3.0—Time for a New 401(k) Model?
Mark Iwry, senior advisor to the Secretary of the Treasury for retirement policy, acknowledges that automatic 401(k) features have gone a long way to improve retirement saving opportunities for American workers. He dubbed the widespread use of automatic enrollment of new employees and default investment options such as target-date or balanced funds or managed accounts "401(k) 2.0."
But why stop there, Iwry asks. Employers could move to a 3.0 model that's more robust:
Rather than settling for the standard 3 percent default rate for the initial salary deferral of new employees who are automatically enrolled in their company 401(k) plan, start at a higher level, perhaps 5 or 6 percent.
Instead of limiting auto enrollment to new employees, expand it to existing employees who are not participating in the retirement plan.
Iwry suggested additional best practices including more effective employer matching contributions (including matching formulas that offer lower-wage workers a higher rate of match), shorter eligibility waiting periods, broader coverage of part-time workers and expanded acceptance of rollover contributions.
Even the most generous employer match and the best investment options won't help you hit your savings goal unless you start contributing to your plan.
PlanSponsor.com reports that 91 percent of plans offer automatic enrollment to new employees, while less than 30 percent offer it to existing workers who were not previously enrolled (automatically enrolling ALL employees is considered a best practice).
Smart Automatic Retirement Plan Investing
This RMS publication will help employees make the most of their employer’s automatic retirement plan. The brochure provides valuable educational information including:
Don’t Look Now—But You’ve Already Been Enrolled in an IRA Savings Plan
Automatic enrollment in 401(k) plans has been such a success that a lot of people want to duplicate it with IRAs. Proposals that would require employers to establish automatic payroll deductions for IRAs have been kicking around for a couple years. Now the measure is being called for in President Obama’s budget. Read the Time article
Study Suggests Ways Employers Can Help Young Workers Save for Retirement
A new issue brief from The Center for Retirement Research at Boston College indicates that the appropriate “framing” of the retirement savings issue can help young employees save for the long-range goal of a secure retirement. One reason young workers don’t save for retirement is that the event is so far off. An experiment to boost their saving tested different ads:
Abstract or concrete wording (“why you should save more now” vs. “how you can save more now”); and
A short- or long-term savings goal (“how much to save from each paycheck” vs. “how much to save over your lifetime”).
The study also found:
The most effective ads paired abstract wording with a long-term goal and concrete wording with a short-term goal.
2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings
According to the Employee Benefits Research Institute’s most recent survey, Americans’ confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement. Key findings include:
Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today.
Many workers report they have virtually no savings or investments. In total, 60 percent of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.
401(k) Plan Sponsors Less Confident Employees Will Be Financially Prepared for Retirement
The 11th Annual 401(k) Benchmarking Survey conducted by Deloitte, the International Foundation of Employee Benefit Plans (IFEBP) and the International Society of Certified Employee Benefit Specialists (ISCEBS) finds plan sponsors and providers focused on closing the retirement readiness gap and getting ready for new fee disclosure regulations.
Auto enrollment continues to grow: 56 percent of 401(k) plans include an automatic enrollment feature, up 7 percent from 2010.
To encourage plan participants to make better use of their 401(k), nearly half of plan sponsors (49 percent) are offering features that automatically increase participants' contribution levels.
