Employers can help their employees’ mindset by getting them started with the right deferral rate through auto enrollment. Employers who have used auto enrollment have generally started their employees at 3%. Employers need to review their plan designs and consider adding auto enrollment at 6%, or add auto escalation to start employees saving an appropriate amount for retirement.
Research has shown that automatic enrollment in 401(k) plans can have a great effect on retirement income adequacy. The impact of automatic contribution rate increases coupled with automatic enrollment has been less clear. New research from the Employee Benefit Research Institute seeks to fill that void. The study analyzed the likely increase in “successful” retirements for participants in plans with automatic enrollment and automatic deferral rate increase features if all such plans set their default deferral rate at 6% of pay. The results indicated significant increases in success rates for both low- and high-income employees, assuming no change in opt-out behavior.
