Automatic 401(k) features including auto-enrollment, as well as plans that also automatically increase participant contributions each year are beginning to have a significant impact on the success of employer-sponsored savings plans, and the balances of participants whove stayed in the game.
At some worksites, contribution managers have moved more than two thirds of its workers to an auto-enrollment system, and numbers are even higher at other employers. One retirement plan vendor, Vanguard, notes that 34% of its plans have adopted automatic enrollment, up from 24% five years ago.
A quarter of Americans are estimated to be partially prepared for retirement but need help getting the rest of the way, says Jean Young, senior research analyst at the Vanguard Center for Retirement Research. Employers can do more to help both of these groups by enhancing their plans with features like automatic enrollment, annual saving increases, and balanced default investment options.
More than half of all contributing participants in 2013 were in plans with automatic enrollment, and 62% of the employees participating for the first time were in plans that had adopted automatic enrollment, the company adds.
Vanguard says that while most auto re-enrollment plans did increase contribution rates, some were still coming up shorthanded. Of the auto enrollment plans reviewed, 29 percent did not provide an automatic increase for annual contributions, and, separately, 65% of the auto-enrollment programs defaulted to an initial contribution of 3%, or less.
Additionally, Vanguard notes, the average participant account balance was $101,650 in 2013. Among continuous participants those with a balance between both year-end 2008 and 2013 their median account balance rose by 182%, reflecting the effects of ongoing contributions and market returns.
Balances are now well ahead of the peak levels achieved prior to the global financial crisis, Young says. The effects of the market decline on retirement savings are now firmly in the past.
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