Auto Enrollment Boosts Participation for Workers 55 to 69

But because defaults are so low, their contributions are lower than those who voluntarily opt in.

Automatic enrollment succeeds in boosting participation by older workers age 55 to 69 in defined contribution (DC) plans, the Center for Retirement Research at Boston College found. Auto enrollment raises participation to 92.7% for older workers, compared with 84.9% in plans where participants must enroll voluntarily.

Auto enrollment of older workers also boosts participation for long-tenure workers (95.3%) compared with voluntary enrollment for this group (90.5%). The difference is even greater for short-tenure workers, with only 68.2% of this group freely joining the DC plan on their own, compared to 80.8% of those automatically enrolled staying invested in the plan.

Differences in participation are also pronounced, depending on salary. In the bottom earnings quartile, 91% remain in the plan if automatically enrolled, but only 51.6% of the bottom-earnings-quartile older workers voluntarily join the plan. Older workers in the top earnings quartile are more likely to voluntarily join the plan (96.1%), with automatic enrollment for this group lifting participation only slightly, to 97.4%.

“The results show that automatic enrollment is associated with a higher proportion of older workers included in a DC plans—particularly short-tenure workers and the lowest earners,” the Center for Retirement Research says.

NEXT: Contribution amounts

The problem with automatic enrollment of older workers: because deferral rates are set so low, those who are automatically enrolled in a plan contribute less than those who willingly join the plan on their own, the Center for Retirement Research says.

Because some DC plans are nonparticipatory plans that have the employer make a contribution instead of requiring workers to defer a portion of their salary, the Center finds “that automatic enrollment is associated with a lower likelihood that older workers will contribute to their DC plans. As a result, employee contribution amounts are lower among those who have been automatically enrolled, compared to those who were given a choice to enroll."

While it is true that employers of older workers contribute a higher match to automatically enrolled participants than they do for voluntary participants, the matches “are not high enough to offset the lower employee contributions.” This results in automatically enrolled older workers contributing significantly less than those who are voluntarily enrolled.

Automatically enrolled older workers contribute an average $1,293, and their employers add another $2,248—for total contributions of $4,800. People who join the plan on their own, on the other hand, contribute an average $3,354, and their employers kick in another $1,608—for total contributions of $6,072.

The Center for Retirement Research concludes that “automatic enrollment could do a better job of boosting overall contribution levels among participants. Possible ways to achieve this might be by offering a more generous employer match and by using auto escalation. Moreover, most employers set the default employee contribution in their 401(k) plan at a rate that does not take full advantage of the employer match, [and] participants remain at the lower default contribution rates.” The Center says that default rates need to rise, not just for older workers but for all participants.

The study can be downloaded here.