In view of the apparent tendency of auto-enrolled participants to stay put , what should a plan sponsor do? Should you:
- target specific communications at these participants,
- set default assumptions to provide higher contribution rates
- set default investment options to be more aggressive, perhaps a balanced or lifestyle fund
- leave it alone – participants are still better off than they would be otherwise
- reconsider automatic enrollment
- some combination of the above
Nearly half (44.6%) were in favor of targeted communications ? not just in terms of who the communications were written for, but also how those participants were communicated with, and how often. Second most popular was the 23.2% that suggested that, regardless of result, the best answer was just to leave “well enough” alone .
Nearly 18% were nonetheless in favor of choosing more aggressive default investment options for these contributions, while 9% opted for some combination (most commonly targeted communications, with a leaning toward leaving things unchanged). Typical of this sentiment was this comment:
“A combination of a and d. I would leave the program as it is because participants are better off than not saving at all, at least they will have some form of savings, while I would target communication at this group to at least consider moving funds into different investments. I think making the default more aggressive could bring on unnecessary liability.”
Roughly 4% were in favor of a higher contribution rate , and less than 2% said that autoenrollment should be rethought .
A frequent suggestion involved gradually increasing the deferral rate over time, giving the employee a bit of time to “adjust” to the financial impact of a higher deferral rate. For example, “Continue automatic enrollment starting out small (i.e. 3%). Each year on a set date (Jan. 15th??) everyone’s contribution percent is increased by 1%. Participants could still go back in and change the percent to more or less but the automatic process would be to increase each year.”
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SELECTED READER VERBATIMS :
“I feel very strongly that one would be doing employees a disservice (and placing the corporation in a bad position) by setting default investment options for a group you automatically enrolled……. How scary is that with respect to liability issues … force them to join the plan and then placing the money in high-risk funds. Who thinks of this stuff?”
“People have the right to make their own decisions, even if they are bad one. Plan sponsors are not their mothers and I do not think auto enrollment is the answer. Spending the time, one on one with the participants, at enrollment is our best method. Then you have the opportunity to sell savings. Given that many of our workers make less than 30K, saving is tough for them and they need a little handholding. Open your door to questions and be willing to do a little counseling. Then peer-to -peer communication will begin to spread the word. (It’s a lot harder to sell this in a falling market).”