Auto DC Features Not Just a U.S. Trend Anymore

October 5, 2009 ( - The adoption of automatic features to defined contribution plans is hardly just a U.S. development these days.

A new 33-country Mercer survey of employers offering defined contribution (DC) retirement plans revealed widespread adoption of automatic enrollment and other relatively new automatic features designed to boost employee enrollment.

One-third of the employers surveyed use automatic enrollment, one-third use automatic contribution escalation, and over one-fifth offer automatic rebalancing features, Mercer said in a news release. Among the close to 80% of companies that have a default investment option, lifecycle funds are the most common default instrument, used by 67% of those respondents.

The move toward auto features comes as the majority of survey respondents are seeking strong participation by their employees, with 74% setting target participation rates of 80% to 100%. Just over half have actually achieved a participation rate of 80% or more.

“‘Automatic’ plan features have become prevalent in some countries and are spreading quickly to other countries to combat employee inertia and to fulfill plan sponsors’ desires to further increase participation rates,” said Barbara Marder, a worldwide partner who heads Mercer’s global DC consulting and the retirement international consulting businesses, in the news release.

Mercer said the trend signals that DC plan sponsors across the globe have moved away from paternalism, and now see their role as that of a “facilitator” for employees to save for retirement (55% of respondents). Overall, 76% of respondents indicate their top reason for sponsoring a DC plan is to remain competitive attracting and retaining employees, 56% want to encourage employee responsibility, and 53% want to provide adequate benefits at retirement.

Other survey results include:

  • Companies are generally active in monitoring and managing their fund lineup and investment managers, with 58% reviewing the range and number of fund options each year.Over 73% review investment performance at least semi-annually, but only 42% review an investment manager's qualitative factors over the same time period.
  • Nearly half (44%) of the multinationals surveyed stated that their DC plans are managed and overseen by either global committee(s) or individuals in the corporate head office. Another 13% centralize DC plan management/oversight at the regional level.
  • Surveyed multinational companies cite member communication and market/investment volatility as the primary risks associated with their global DC plans. Plan design tends to be most often centralized, with headquarters at 71% of multinationals playing an active role in setting the plan's contribution rate.
  • Only 12% of the plans surveyed currently offer participants investment options such as socially-responsive investments or environmental/green funds. Of those that have a global corporate social-responsive (CSR) strategy, only 29% already reflect or are considering reflecting this strategy in the management of their DC plans.
  • Over 72% of sponsors offer 15 or fewer funds to participants. The most prevalent investment options are balanced funds (offered by 61% of respondents), lifecycle funds (57%), and fixed-interest gilt/bond funds (51%).
  • Two-thirds of respondents require a minimum level of employee contribution to qualify for a core company contribution. In addition, 69% require members to make an additional contribution in order to get the employer match.
  • It is common across the globe to limit the company match to 6% (30% of respondents). Matching contributions among the plan sponsors surveyed range from 1% to more than 10%, with the most common matches 3% and 4% of pay (21% and 18%, respectively).

The new survey covers 33 countries in 12 languages across Continental Europe and the UK (452 respondents), Asia Pacific (146), Latin America (146), the U.S. (621) and Canada (230), with estimated aggregate fund assets in excess of $440 billion.

The Web-based poll was conducted in June 2009, with more than 1,500 responses received (including over 300 from multinational companies) and is available at .