There was no change in 2016 in automatic enrollment adoption by 401(k) plans, according to a Cogent Wealth Report, “One Size Does Not Fit All DC Sponsors.”
While auto-enrollment remains the most popular auto-feature offered in 401(k) plans today, just three in ten (29%) plans take advantage of this option. However, usage does increase with plan size, with the large plan segment (51%) representing the highest proportion of plan sponsors with auto-enrollment as a plan feature.
In addition, the research found a significant decrease in the reported plan sponsor usage of auto-increase of deferral rates and automatic rebalancing compared with 2014. Currently, one in five (19%) plans offer automatic rebalancing, which is down from 26% two years ago. Use of auto-increase of participant deferral rates has fallen to 13% from 17% since 2014. Declines in usage for both auto-features are driven primarily by decreases in the micro and large plan segments.
Employer matching contributions are offered by fewer plans in 2016, representing a decline to 50% overall, down from 57% in 2015. Significant decreases occur across all plan size segments in offering contributions commensurate with at least a portion of the amount of money being deferred by the participant to the plan.
The report says, “Decreasing use of these features can be related back to the most commonly cited primary focus of plan sponsors need to cut fees. In a cost-constrained environment, plan sponsors may be less likely to offer auto-features if they result in a higher total plan cost of administration and may “opt out of auto” upon changing recordkeepers in efforts to maintain or lower costs.”
However, looking forward, the research found increases in the likelihood of plan sponsors adopting auto-enrollment, automatic rebalancing and auto-increase of deferral rates. Overall, 17% of plan sponsors report a top 3-box score for likelihood to initiate offering auto-enrollment for their respective 401(k) plans—up from 6% in 2015. With regard to auto-rebalancing, almost as many plan sponsors overall (17%) intend to add this feature as there are plan sponsors who already offer it (19%). In addition, 18% overall report high likelihood of adopting the auto-increase feature. NEXT: Investment options and advice