New Study Shows Workers View Automatic Enrollment In 401(k) Plans, Automatic Escalation Positively

A new study of more than 10,000 Americans shows that men and women alike view automatic 401(k) enrollment and contribution escalation plans positively, particularly those who take advantage of such features. Furthermore, the research indicates that participation in automatic 401(k)s may not only build confidence in investing for retirement but also build loyalty to employers offering automatic 401(k) features. These findings have taken on particular importance in light of the economic uncertainty confronting the country in recent months.

The survey found that women – particularly moderate- and lower-income – are less likely than men to say they participate in employer-sponsored 401(k) plans. The survey also shows that women are less likely than men to feel confident that they are saving enough for retirement and in their ability to make the right investments for retirement by themselves.

The study was conducted by Porter Novelli ConsumerStyles® on behalf of Retirement Made Simpler (RMS), a coalition formed by the Financial Industry Regulatory Authority (FINRA), the Retirement Security Project (RSP) and AARP, to improve the way Americans save for retirement.

The study found that, while 58% of employed men participate in a 401(k) retirement savings plan, only 49% of employed women do. For moderate- and lower-income women – those earning less than $50,000 a year – their participation rate drops to just 38%. The findings also support the notion that women feel less confident in their ability to plan for a stable retirement. Only 19% of employed women say they feel confident that they are saving enough for retirement, and just 23% say they feel confident in their ability to select the right retirement investments. For employed men, the numbers are 26% and 33%, respectively. Just 14% of women earning below $50,000 say they feel confident they are saving enough.

The study suggests that there are ways companies can help workers feel more confident about saving, and even increase company loyalty in the process. These new findings paint a favorable picture of features designed to help workers save for retirement through automatic enrollment in 401(k)s coupled with automatic escalation. These two elements alone could help women – and other at-risk populations – save more effectively for their retirement. Typically, automatic enrollment increases participation in 401(k) plans to levels of 90 to 95%. Adding automatic escalation can help build workers’ nest eggs by gradually increasing employee contributions as they become accustomed to deferring a portion of their pay.

Over 90% of employees who have been automatically enrolled or had their 401(k) contributions automatically escalated report positive feelings toward these features. Indeed, they report a higher level of positive feeling toward these features than employed adults generally (77% automatic for enrollment and 65% for automatic escalation). This data makes a very strong statement that auto enrollment and auto escalation will not result in employee backlash, as some have feared, but may have just the opposite effect.

View Retirement Made Simpler Employee Satisfaction Study 2008