Retirement savings plans are using workers’ inertia to help them

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(Bloomberg) – A retirement savings wave that has been rolling stealthily across corporate America is gaining momentum.

Some 68% of large U.S. companies now automatically enroll employees in 401(k) plans, up from 58% two years ago, according to a new survey.

Three-quarters of those employers bump up worker savings rates automatically every year, and many continue until savings rates hit 10% and beyond — or until, presumably, the employee screams. That may seem a little heavy-handed, but a retirement plan that's largely on autopilot can make inertia work for, rather than against, savers.

After all, saving 10% of one’s salary doesn’t even meet the minimum suggested by experts such as Morningstar’s head of retirement research, David Blanchett. He puts the minimum at 12%, and says a good rule of thumb is more like 15%. Some of that should come from your employer’s matching contributions.

A biennial survey by benefits administrator Alight Solutions reached 333 big U.S. employers representing 10 million workers and $775 billion in retirement assets. Among some of the positive signs in the survey: A third of companies are setting the default savings rate for workers automatically enrolled in their plans at 6% or more of salary.

The survey still found the common, inadequate savings rate of 3% at 37% of employers.

Here are highlights from the report:

Thirty-four percent of the companies offer employer stock as an option in plans. As an asset class, it made up 11% of the total, the same percentage held in stable value funds. "The concentration in company stock is going down, but it's still a pretty large asset class," said Rob Austin, director of research at Alight.

Thirty-one% of plans that offer employer stock restrict how much of a new employee’s contributions can go into the stock or limit it to a chunk of the overall balance. That limits how much of a potential hit a worker can take from holding such a concentrated position in a stock.

Assets in large-cap stocks in the plans surveyed rose to 23% of the total, from 21% in 2015, while money in stable value funds fell from 14% to 11%. Employer stock slid from 13% to 11%, and asset allocations to intermediate-term bonds rose to to 7%, from 5%. Allocations to the 14 other asset categories had the same percentage figures as in 2015.

Three quarters of companies offer a Roth 401(k) option, up from 58% two years ago and 11% a decade ago. Over the past decade, the percentage of plans offering managed accounts from an outside vendor as an option has risen from 11% to 58%. These accounts offer a more personalized asset allocation for an extra fee. Just 14% of employees, on average, opted for a managed account in 2017, down from 16% in 2015 and 20% in 2013.

The biggest change in the asset classes available to plan participants was a jump to 17%, from 12% in 2015, in the percentage of plans offering global equity investments. The asset classes that the plans were most likely to add were target date/target risk funds (27%), midcap equity (23%), and stable value (18%).

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