Considering Auto Escalation in Public DC Plans

March 28, 2014 ( – As state and local governments continue to modify their retirement packages, public employees may need to save more for retirement, says a new study.

The study from the Center for State and Local Government Excellence, “Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings,” suggests one way supplemental retirement savings plans for public employees could be enhanced is by including automatic deferral escalation. The study report highlights the challenges and opportunities state and local governments face as they consider instituting automatic escalation plan features.

Future retirees, as well as some current retirees, may see their defined benefit (DB) pension provide less income and will likely be responsible for paying more of their own health care expenses, the center says. Paula Sanford, a public service and outreach faculty member at the Carl Vinson Institute of Government at the University of Georgia, examined automatic escalation options for public sector defined contribution (DC) plans to help employees boost their retirement savings.

“Defined contribution plans are expanding their use of automatic features to make saving easier and to improve retirement income outcomes for participants. Increased use of these tools is based on behavioral economics research, which has examined obstacles to saving for retirement, including knowing how much to save, how to invest, and how to develop the willpower to save,” she says.

Using interviews, case studies, and a review of academic and practitioner research, Sanford offers recommendations for how state and local governments might incorporate automatic escalation into their DC plans, such as:

  • Ensuring that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy;
  • Acknowledging there is no uniform approach to automatic escalation policies and having the policy reflect a government’s unique work force preferences;
  • Reducing or eliminating as many barriers to enrollment as possible;
  • Communicating with employees about the benefits of the feature once adopted; and
  • Considering implementation of the auto-escalation feature in conjunction with other plan features, such as automatic enrollment.

The study also includes case studies of successful implementation of automatic escalation in supplemental DC plans for public employees in Missouri, Ohio and Virginia.

More information about the study, including how to download it, can be found here.