Auto Enrollment Wins Prevalence in DC Plans by Slim Margin

October 30, 2008 ( - Automatic enrollment of employees into defined contribution retirement plans has been adopted by a majority of plan sponsors, according to a recent survey from Mercer.

Fifty-one percent of 173 primarily larger plan (1) survey respondents are now offering some form of auto enrollment, with another 6% planning to add it in the near future, and 18% actively evaluating the feature, a Mercer press release said. “The old hesitancy by employers to ‘force’ employees to make contributions has given way to the more pressing challenge of inadequate retirement savings. In fact more than half (56%) of the respondents to our survey cited this challenge as their number one reason for adding auto enrollment to their plans,” said Amy Reynolds, a Mercer principal and defined contribution retirement plan consultant, in the press release.

Cost was the primary reason for not adding auto enrollment, followed by concern over being too paternalistic.

The survey also found a strong correlation between offering automatic enrollment and plan participation rates, according to the press release. While almost half (45%) of those plans that have automatic enrollment achieve participation rates of 90% or more, only 7% that do not use the feature achieve these high rates. Nearly three quarters of plans with automatic enrolment achieve at least 80% participation, compared to less than 20% of those that do not offer it.

Two-thirds (65%) of plans that use auto enrollment experience opt-out rates of less than 5%, and only 8% experience opt-out rates greater than 10%.

Auto Designs

Among the survey respondents who utilize automatic enrollment, Mercer’s survey found 62% use a 3% default salary rate, 20% use a default rate greater than 3%, and 11% are using a 2% default rate.

Seven-in-ten (70%) also use an automatic deferral increase feature – in which plan sponsors increase participant deferral rates each year by a given amount – either as the default or as an option.

(1) Among the 173 defined contribution plan sponsors that responded to the survey, almost half (49%) have 5,000 or more participants and more than a third (35%) have from 1,000 to 5,000 participants. Nearly half (44%) have assets over $500 million and 24% have assets between $100 million and $500 million.