Employee participation in defined contribution (DC) plans is at the highest levels ever seen, according to a new report. Aon Hewitt says not only is participation high but balances are at pre-recession levels. The flipside is that employee savings rates remain stagnant.
The report, which looked at more than 140 DC plans representing 3.5 million eligible employees found that on average, 78 percent of employees participated in a DC plan in 2012, up from 75 percent in 2011, and 68 percent in 2002. Also average DC plan balances have reached their highest levels since 2006. The average total plan balance in 2012 was $81,240, up significantly from $57,150 in 2008.
“It is encouraging to see more people participating in DC plans--the impact of automatic enrollment has been astounding,” says Patti Balthazor Bjork, Director of Retirement Research at Aon Hewitt. “Companies are definitely moving in the right direction when it comes to encouraging financial wellness among their workers, but there is certainly opportunity to do more.”
It appears that the rise in participation is directly correlated to automatic enrollment. Fifty-nine percent of employers now automatically enroll employees in their company DC plan, compared to just 34% in 2007. On average, participants subject to automatic enrollment had a participation rate of 81%, nearly 20 percentage points higher than those without automatic enrollment.
Unfortunately savings rates are not keeping up with the retirement needs and goals of workers. The average before-tax contribution rate remained flat from 2011 at 7.3% of pay. One of the more problematic findings shows that workers are not saving enough to take advantage of company matching dollars. Nearly 28% of employees contributed below the company match threshold.
“Once they are enrolled in the plan, inertia takes over for many employees and they make few adjustments to their DC plans,” explains Bjork. “Employers can help by coupling automatic enrollment with other features, like contribution escalation, that enable employees to increase their savings rate over time. Combined, these can make a big impact on employees' long-term financial outlook.”
Joel Kranc is Director of Kranc Communications, focusing on business communications, content delivery and marketing strategies. He has written and worked in the retirement and institutional investment space for 17 years covering North American markets, large institutional pensions and the adviser community.
