Set aggressive levels. The average automatic enrollment deferral is just under 4 percent, but employees opt out at virtually the same rate when the deferral is 6 percent.
Adopt a bundled approach to rolling out automatic deferrals. Ninety-seven percent of plan sponsors who have adopted the bundle of automatic enrollment, automatic escalation, and QDIAs say the advantages outweigh any perceived disadvantages.
Take into account that low-income employees are more influenced by defaults. Thatís the conclusion of a study by researchers from the National Bureau of Economic Research. Low-income employees are less likely to opt out of the default. And the asset allocation of low-income employees is affected more by a change in the default investment fund. For example, when employees were defaulted into an aggressive fund, far more low-income employees stayed in the fund than higher-income employees.
Automatic enrollment in DC plans is commonplace, but companies are missing opportunities to increase its value by adding automatic deferral increases. More than two thirds of companies (68 percent) offer automatic enrollment to at least some of their workers, but far fewer automatically reenroll non-contributors or those deferring less than the default amount. Of the companies that offer automatic enrollment, only 35 percent mandate automatic escalation.
Employee knowledge and confidence gaps are barriers to saving. Only 12 percent of companies say their employees know how much to save, and just 20 percent believe their employees are comfortable making investment decisions.
Improving communication and adding new approaches will be a top priority in the next two to three years. To address the shortfall in employee knowledge, most companies say they will devote more attention to employee education and communication.
57 percent of workers did not increase their plan contribution after their last raise. The most common reason cited for not doing so was an immediate need to pay expenses. On the positive side, 25 percent of respondents who didnít increase their contributions after their last raise said the reason was because they were already contributing the maximum amount to their retirement plan.
37 percent of respondents who were not automatically enrolled in a plan reported that they waited six months or longer to enroll, and one in four employees (24 percent) waited a year or more.