Administration January 21, 2015

401(k) Plan Sponsors Offering More Robust Auto Features

A strong majority of companies with 401(k) plans have adopted automatic enrollment and other steps to ensure workers receive the full employer matching contribution, according to Aon Hewitt.

Reported by

PLANSPONSOR staff

Seven out of 10 (70%) companies offer automatic enrollment features in their 401(k) plans, according to an Aon Hewitt pulse survey covering the fourth quarter of 2014.

The retirement and health solutions company surveyed approximately 100, primarily large, companies with defined contribution (DC) plans, finding 29% of employers auto-enroll their employees in the company plan at a savings rate that is at or above the full company match threshold. Another 27% auto-enroll their employees below the full match rate, but automatically escalate contributions over time, enabling workers to save enough to receive the full match.

“In the past, employers automatically enrolled workers into 401(k) plans at low rates and workers often wouldn’t increase their contributions enough to reach the full company match—to the detriment of their retirement savings,” explains Rob Austin, director of retirement research at Aon Hewitt. “Because many employers gauge the success of their plan by the number of workers saving enough to receive the full match, they understand that they need to give workers an added boost by either starting them off at a more robust savings rate or automatically escalating contributions over time up to, or beyond the match threshold. That extra savings can have a remarkable impact on workers’ long-term savings outlook.”

The survey revealed that among plans with auto-enrollment, just 7% set the default deferral rate above the full company match level. Significantly more (34%) have default rates at the full company match level, and 59% default employees below the full company match level. Additionally, 8% of companies auto-enroll workers below the full match threshold and have contribution escalation as an opt-in feature.

Aon Hewitt’s survey finds companies that do not have auto-enrollment most often cite the increased cost of the employer match as the biggest barrier (67%). Others are not concerned about the reaction from employees (37%), or they do not want small account balances in the plan (30%).