SURVEY SAYS – What's Your Plan's PPA Adoption Rate?

May 15, 2008 ( - Believe it or not, the Pension Protection Act (PPA) is nearly two years old - and yet some of the most significant provisions relevant to defined contribution plans only just took hold this year.

This week I asked which – if any – provisions readers had adopted in their plans (see  PPA Opens the Way – Defined Contribution ).

Just over a third ( 36% ) had adopted automatic enrollment (one-in-five in 2008), though only about one-in-five ( 22% ) had embraced contribution acceleration (roughly a third of that this year) and picking a QDIA-eligible default proved to be the most popular of all.   How popular?   More than half ( 51% ) of this week’s respondents had done so, with more than two-thirds taking that step this year alone (not surprisingly, since the QDIA regulations were only just finalized late last year).  

However, only about 6% had gone for the whole PPA “package” – and more than a quarter ( 28% ) had adopted none of the PPA-related options.

Looking ahead – nearly 22% said that automatic enrollment might be in the cards for “next year”, while an even larger 28% felt that way about contribution acceleration.   One-in-eight were moving toward a QDIA-eligible default in that time period – and one-in-five said that the full PPA package could be adopted then.

As for participant response, for the most part it was a case of "no real reaction" to the newly adopted provisions.   That was the case in nearly half the programs that had adopted automatic enrollment, more than half of the plans with contribution acceleration (though, as one reader noted, "A lot of participants have the "frog in the pot" syndrome. We'll see what happens next year when we "turn up the heat" and the contribution rate goes up a percentage" ), and more than three-quarters (79%) of plans that have embraced a QDIA-eligible default.   Interestingly enough, that was the unanimous sentiment of the programs that had gone with the full PPA menu.  

By those measures, automatic enrollment - which 24% of this week's respondents said was received very positively and a full third said positively - was the big winner with participants.   As one reader noted, "Auto enrollment has been wildly successful. Auto-enrolled participants stay in the plan at a 90+% rate. Our overall participation rate has increased by 10 percentage points. This has confirmed everything I've come to believe about human nature as I've watched savings behaviors over the years."

It was also noteworthy that NONE of the respondents to ANY of the categories indicated ANY negative reactions from participants.

Despite the focus of this week's survey (or perhaps because of it), most of the comments this week were from readers that had not embraced any of the PPA changes - and for what appeared to be valid reasons.   Here's a sampling:

"We have both a small number of employees and large fixed employer contribution (12%) in addition to a 4% match. Our plan administrator personally meets with each employee shortly before they become eligible. No one has ever not enrolled and no one has ever failed to allocate contributions to specific investment options/funds."

"We have not adopted automatic enrollment because our mandatory enrollment meetings includes the enrollment process, thereby nullifying the need for it. We have discussed contribution acceleration, but we have a decent average contribution rate and at this time feel that it is too "big brother-ish" to implement. Also, our employees can change their contribution at ANY time, so even if we set them up to automatically increase, they could submit a contribution change to set it back, effectively setting us up to play tug-of-war every year."

"We have 88% plan participation, didn't feel the need to auto enroll. We return any enrollment form that doesn't choose an investment option, so we don't need a QDIA default. It is interesting to see our old default was a guaranteed fund and many employees are still enrolling in it on their own. Especially in this market. They are making 5% when all around them are losing. We talked about the acceleration, but instead, we send out a newsletter in January listing the new annual limit and encourage employees to take advantage of the plan. Many change then. If not, many increase their contribution after doing their taxes."

"From a benefits standpoint, these provisions are much ado about nothing. For the most part, they're simply a marketing opportunity for the financial services industry."

"We're a conservative organization, not the last to act but certainly never among the first. Something changed, and since EGTRRA and through PPA I've felt like a kid in a candy store. "Wait and see" was replaced by "Let's go". Instead of listening to chicken little we fried her."

But this week's Editor's Choice goes to the reader who observed, "…after having dealt with PPA for the past two years, I'm ready to be adopted - by another profession!"

Thanks to everyone who participated in our survey!