Automatic Escalation in Public Sector Retirement Plans An issue brief from the Center for State & Local Government Excellence notes that localities across the country continue to modify their retirement packages in an effort to offer benefits that are sustainable and provide sufficient retirement income.
Automatic escalation can help employees avoid a potential retirement savings shortfall. The brief offers case studies of how governments successfully incorporated automatic escalation policy into their defined contribution retirement plans. The brief also makes a number of recommendations, such as:
Ensure that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy.
Acknowledge that there is not one uniform approach to automatic escalation. The policy should reflect a government’s unique workforce preferences and policy environment.
Must automatic contribution escalation programs have a one percent step-up auto escalation rate? While most plans do adopt a one percent annual increase, there is no requirement to use one percent. Plan sponsors are free to use a higher step-up percentage if they choose. They also can step up the rate on a semi-annual basis.
More Plans Going Automatic According to the latest release of the Bank of America Merrill Lynch 401(k) Wellness Scorecard, which identifies and examines trends within the firm’s book of retirement plan business:
The number of 401(k) plan sponsors adopting automatic enrollment increased 16 percent in 2013.
The adoption of automatic annual deferral increases grew 25 percent—and Bank of American Merrill Lynch observed a 20 percent increase in the number of plans using both auto-enroll and auto-escalation features.
Automatic Features and the Power of Bundling New research and analysis from Retirement Made Simpler and Lincoln Financial Group demonstrates just how much impact the bundling of automatic features can be when it comes to increasing employee participation and deferral rates.