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Auto-escalation, which automatically increases the percentage of an employee’s salary that is contributed to a retirement plan, is getting more Americans on track for retirement, says Joleen Workman, assistant vice president in the retirement division of Principal Financial. Here, Workman shares half a dozen ways advisers and employers can implement the practice within an employee population. Four in 10 Principal clients who use auto-enrollment offer auto-escalation, up from just 9% in 2010 — with most of the growth in the past 12-18 months.

Read more about auto-escalation here.

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1) Consider total retirement benefits available

As a broker partners with their financial professional and provider to review DC plan design, it is important to consider total retirement benefits available. “A holistic review impacts income replacement ratio and individual retirement readiness,” Workman says.

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2) Provide tools for participants

These tools should allow participants to model and enter their outside benefits. Says Workman, “This illustrates both a comprehensive and a personalized income replacement ratio, which will increase their savings engagement.”

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3) Align the automatic escalation date for all employees

This date should also coincide with annual pay increases. “A determination that simplifies administration and improves employee reception; also is timely to help reduce any potential perceived impact to paycheck,” Workman explains.

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4) Make the escalation (rate and cap) meaningful

By making the escalation rate cap 1% or more annually up to 10%, it helps employees arrive quicker at double digit savings rates.

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5) Apply escalation to all employees at least once.

Escalation should be applied to all employees, including those who have an affirmative election below the cap. “This assists all participants, including those who set it and forgot it and those who have long tenures who certainly should benefit from their service and their savings,” Workman says.

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6) Know the real goal

“Participation success is not plan or retirement readiness success,” Workman says. “Ensuring adequate income over the 20-plus years in retirement is the real goal.”

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