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Retirement Made Simpler News
June 8, 2010
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New Research
Automatic 401(k) Plans: Employer Views on Enrolling New and Existing Employees
In the past few years, a growing number of employers have added automatic features, especially automatic enrollment, to their 401(k) plans. This national telephone survey of large employers with 401(k) plans was conducted to better understand large employer attitudes toward and experiences with two automatic 401(k) features: automatic enrollment and automatic escalation.
AARP commissioned Woelfel Research, Inc. to conduct this telephone survey of 806 large employers with 401(k) plans. Partial funding was provided by Retirement Made Simpler. Key findings:
- The vast majority (94%) of employers surveyed report that they are either “very familiar” or “somewhat familiar” with automatic enrollment in 401(k) plans. While familiarity with automatic escalation is lower than familiarity with automatic enrollment, a majority (78%) of employers also report that they are familiar with automatic escalation.
- 58% of respondents report they have adopted automatic enrollment for their own plans. Fewer (28%) report that their 401(k) plans have an automatic escalation feature.
- The majority (58%) of employers with automatic enrollment report that they automatically enrolled only new hires when they first adopted automatic enrollment. Just over one-third (35%) automatically enrolled all non-participating employees who were eligible for the plan.
- Of those employers who automatically enrolled only new hires at adoption, only about one in ten (11%) report that they have automatically enrolled all non-participating employees at least once since adopting automatic enrollment.
- Employers were most likely to identify the following as "major reasons" that companies offer automatic features: it helps employees save more for retirement (74%), it is easier to pass nondiscrimination testing (49%), and it demonstrates that we are a socially responsible company (35%)
- When asked why they do not have automatic enrollment for their 401(k) plan, employers without automatic enrollment most frequently cited employee-related challenges such as a concern that employees would not like automatic enrollment (30%), costs (20%), contentment with the status quo (14%), and a lack of information (10%).
- When employers without automatic escalation were asked to explain their reasons for not including this feature in their 401(k) plan, the most frequent responses also related to employees and included the company thinks employees would not like it (66%) and the company thinks employees would find it confusing (52%).
Executive Summary
Full Report
Attitudes Towards Automatic Features
While some employers resist implementing automatic 401(k) features because of concern over negative employee feedback, research dispels this myth. RMS conducted a survey in the summer of 2009 to better understand Americans’ attitudes towards saving for retirement, and more specifically, the automatic features of their 401(k) plans, including automatic enrollment and automatic escalation:
- The majority of employed adults maintain positive feelings towards automatic enrollment and escalation.
- Similar to 2008, automatic features continue to be viewed very positively by those who participate in them. Nearly nine in ten of those who participate in automatic enrollment or escalation report positive feelings towards such features (88 percent and 87 percent, respectively).
Read More
Case Study
The Mandarin Oriental Hotel Group, operator of luxury hotels, started its 401(k) program with baby steps in 1987. After the Pension Protection Act of 2006, the company took a hard look at its plan and took steps—including automatic enrollment—to grow enrollment. A number of goals were set for the revamped plan:
- Make it easy to enroll
- Increase participation by at least 50%
- Provide easy to understand investor education
- Help colleagues take control of retirement savings
- Ensure all locations pass annual discrimination testing
To boost enrollment rates and pass discrimination testing, the company used a best practice that is starting to catch on: Mandarin Oriental adopted automatic enrollment of all employees, not just new hires—at a 3% salary deferral rate. Read more to see how effective this an other strategies were in helping the company achieve its goals.
Read Success Story
Featured Resources
Automatic 401(k) Toolkit
Automatic 401(k) Directory
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