Auto Tools Increasing Participation and Savings Rates

March 20, 2007 ( - Automatic enrollment, automatic deferral increases and lifecycle funds are increasing participation and savings rates, according to a retirement trends report by The Principal Financial Group.

Among the results of The Principal’s research of 30,000 full service plan sponsors and 2.4 million participants, was that the average participation rate is 6% higher in defined contribution plans that offer automatic enrollment.

Three-step easy enrollment methods also increase participation rates. The report said that in 2005, plans that used The Principal’s Easy Enrollment increased their participation by 3%.

Both deferral rates and participation rates were also higher among those DC plans using one-on-one retirement plan assistance services. The average deferral rate and participation rate for plans using such services were 7.5% and 73.3%, respectively, compared to the 7.1% deferral rate and 68% participation rate for other plans.

Offering higher matching contribution rates seemed to also stimulate retirement savings among participants. According to the report, participation rates increased by 12% as employers moved from a 25% company match to a 100% match, and participation rates are higher for companies offering a 100% match versus companies offering no match.

The report also revealed that 70% of plan sponsors offered a lifecycle investment option in 2005 a significant increase from 2004, when less than 40% of sponsors offered lifecycle funds. By the end of 2006, more than 80% of plan sponsors were offering lifecycle investment options. Additionally, t he number of plan sponsors using a lifecycle investment option as their retirement plan s default investment option nearly tripled in 2005 from the previous year.

For the full report go here .