Improve Your Plan

How can employers more effectively help employees build adequate retirement savings? To be honest, it isn’t too complicated.

Employers have a ready-made tool in their arsenal that vastly simplifies retirement savings: automatic plan design features. These include auto-enrollment, auto-escalation and auto-diversification through qualified default investments, such as using age-based models.

Help your employees start

With automatic enrollment, employees are enrolled into the plan without needing to take any action — unless they opt-out. One obvious benefit of automatic enrollment is that it drives higher participation rates; in fact, plans with this feature have an average participation rate of 87%.[1]

In most cases, employees are enrolled at a default deferral rate of between 3-6%[2], and their contributions are directed to a diversified qualified default investment alternative, such as our age-based models.

Help them save more

In addition, employers can use auto-escalation, another plan design feature, to help improve employees’ savings rates over time. The typical default increase is 1% per year. While automatic enrollment improves savings rates, adding auto-escalation boosts the impact.

In plans with neither automatic enrollment nor auto-escalation, only 44% have savings rates above 10% (including both employee deferrals and employer matching contributions). In plans that implement automatic enrollment only, the percentage of participants with savings rates above 10% increases to 67%. However, where plan sponsors have implemented both automatic enrollment and auto-escalation, that percentage rises to 70%.[3]

Simple changes to plan documents can significantly help your employees work towards successfully achieving their retirement goals!

[1] Alight. 2020 Universe Benchmarks Report. June 2020. [2] Correia, Margarida. “PSCA: 401(k) participants hike deferral rates again.” Pensions & Investments. Dec. 18, 2019. [3] DCIIA Fourth Biennial Plan Sponsor Survey “Auto Features Continue to Grow in Popularity.” December 2017.