Michigan Office of Retirement Services

Having been an early adopter of automatic enrollment among government employers, in 2016 the Michigan Office of Retirement Services added its Small Steps automatic escalation program, which increases participant contributions by 1% a year unless the person opts out.

The retention rate among 401(k) and 457(b) participants who stick with auto-escalation has been steadily in the 90% to 95% range, says Anthony Estell, executive director of the ORS, in Lansing, Michigan. With average deferrals for the 401(k) now hitting 10.7%, the office has raised its goal for average deferrals from 10% to 15%, the auto-escalation ceiling.

“We haven’t found an ‘ouch’ point for people yet—where they say, ‘That’s too much,’” Estell says.

The state was on the leading edge among government employers in migrating to DC plan coverage for new employees, when, in 1997, the state’s defined benefit plan closed to new participants. It moved to automatic enrollment for new school employees in 2010 and for all new employees in 2012.

Asked why Michigan adopted auto-enrollment so early, Estell says, “The simple answer is necessity. We knew that now we had a group of workers[—those who joined in 1997 or later—]who were entirely in charge of their retirement outcome.” All new state employees are defaulted into the 401(k), and all employer contributions go into that plan; however, employees may also join the 457(b) plan and have their own deferrals go there instead.

The state’s use of the Small Steps theme for the auto-escalation program seems to resonate with Michigan government employees. “It’s important for a couple of reasons. One is we want to make sure people understand that we recognize it’s their money and their decision,” Estell says. If a participant doesn’t feel comfortable increasing deferrals by 1% one year, the ORS will be back in touch the next year with its Small Steps campaign, and that participant will again choose whether to opt out. Otherwise, the 1% increase takes effect. “We’ll come knocking with the campaign again every year,” he says. “We don’t want to have that door permanently close.”

According to projections by Voya Financial, the recordkeeper for the Michigan plans, 61% of the 401(k) and 457(b) participants are now on track to maintain at least 70% of their pre-retirement income after they retire, compared with only 20% before Small Steps launched.

Among participants who have stuck with Small Steps consistently, it has had a big impact on their projected income replacement in retirement, says Len Goff, a Portland, Maine-based vice president and strategic relationship manager at Voya who works with the Michigan plans.

Voya conducted a thorough review of Small Steps data, analyzing the trends from 2017 to 2023, Goff says. “For plan participants who stayed in the program continuously for all six years and did not opt out, their average income replacement increased from 55% in 2017 to 88% as of September 2023,” he says. “That led to a whopping increase of 33 percentage points.”

—Judy Ward