Automatic 401(k) Fact Sheet

Automatic Savings

One of the best ways for employees to build an adequate nest egg is to maximize saving through their 401(k). But far too many are not doing so for a variety of reasons. A simple solution is the “automatic 401(k).” An automatic 401(k) starts employees saving without requiring them to make any initial investment decisions. At any point, employees can change the default options or opt-out altogether.

Three features characterize the basic “auto” plan:

• Automatic Enrollment—Eligible employees are enrolled in the organization’s 401(k) automatically unless they opt-out within a specified period
• Automatic Contribution Rate—A specified percentage of an enrolled employee’s pay is automatically deferred into the organization’s 401(k) plan
• Automatic Investment—Employee contributions are automatically directed to a pre-determined “default” investment such as a balanced fund, lifecycle fund, or professionally managed fund

Automatic 401(k) Plans are Catching On

• 41 percent of 401(k) plans with more than 5,000 participants have adopted automatic enrollment
• 31 percent of plans with 200-999 participants have adopted automatic enrollment compared to 19 percent the previous year
• 31 percent of plans with 1,000-4,999 participants have adopted automatic enrollment compared to 24 percent the previous year ¹

A recent survey conducted on behalf of the Retirement Made Simpler (RMS) campaign by Harris Interactive® confirmed what many employers implementing automatic 401(k)s have come to find: Most employees appreciate automatic 401(k)s and find it makes saving easier. The study showed that of adults currently enrolled in an automatic 401(k) plan:

• 98 percent agree they are glad their companies offer this savings vehicle, with 79 percent of them expressing strong agreement
• 95 percent agree that automatic enrollment has made saving for retirement easy
• 85 percent agree that automatic enrollment has allowed them to start saving for retirement earlier than planned

In addition, of those who were automatically enrolled only seven percent opted-out of the plan; of which a large majority reported being satisfied with the enrollment process overall.

A New Resource

Retirement Made Simpler is a new coalition formed by AARP, the Financial Industry Regulatory Authority (FINRA), and the Retirement Security Project (RSP) to encourage employers to help their employees save more effectively. Find out more about RMS and the benefits of automatic 401(k)s at www.RetirementMadeSimpler.org.

Retirement Made Simpler is a coalition formed by AARP, the Financial Industry Regulatory Authority (FINRA), and the Retirement Security Project (RSP). The campaign was created specifically to inspire and support employers who want to help their employees save more for retirement. By providing companies with the tools and information they need to automate their 401(k) plans, more Americans will achieve a safe and secure retirement. For more information, visit www.RetirementMadeSimpler.org.

The Retirement Made Simpler Survey was conducted by telephone within the United States by Harris Interactive® on behalf of Retirement Made Simpler between September 6, and October 1, 2007 among 10,130 adults of whom 696 were automatically and are currently enrolled in an automatic 401(k) plan and 48 opted-out of an automatic 401(k) plan offered by their company. Results were weighted for age, sex, geographic region, and race where necessary to align them with their actual proportions in the population.

All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments.

Therefore, Harris Interactive® avoids the words “margin of error” as they are misleading. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100 percent response rates. These are only theoretical because no published polls come close to this ideal.

¹ 50th Annual Survey Reflecting 2006 Plan Experience: Profit Sharing/401(k) Council of America.