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Sponsors reluctant to automatically raise worker’s contributions might want to reconsider
Benefit managers still reluctant to automatically escalate employees’ 401(k) contributions should consider this: 55 percent of defined contribution plan participants say they would favor automatic annual increases to their contributions, according to recent survey by OneAmerica, a nationwide network of financial services providers.
“With nonstop family, health and life events, and changing financial obligations over the course of one’s life, saving for retirement can easily fall to the bottom of the priority list,” said Marsha Whitehead, vice president of marketing for retirement services for OneAmerica, in a news release. “Automatic features can help plan participants easily increase their retirement contributions and not get distracted by other financial matters.”
Automatically increasing the contribution amount each year “helps address inflation and cost of living increases,” added Whitehead. But with 29 percent of respondents unsure how they feel about auto-increase features and 19 percent saying they would opt out of the feature, “we still have work to do to educate consumers about the importance of calculating how much retirement income they need and contributing enough to their retirement accounts to meet those needs,” she noted.
Separately, a new research report by Vanguard Investments showed that retirement savings differences by racial and ethnic group are largest among voluntarily-enrolled participants. Along with auto enrollment, the researchers found that higher default deferral rates and annual auto escalation “can help narrow wealth gaps and generate sufficient retirement savings for all participants.”
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