Majority Still Shun 401(k) Auto Enrollment

Despite evidence it helps employees save more for retirement

By Stephen Miller Jun 7, 2010

U.S. employers with at least 500 employees remain hesitant to adopt automatic enrollment features in their retirement savings plans, according to a survey report from the not-for-profit AARP. An overwhelming majority of employers—nearly 60 percent—report that they have not adopted auto enrollment in their 401(k) plans, although most are aware of this feature and its potential benefits, including helping employees save more for retirement. Only 16 percent of employers who do not have auto enrollment reported that they likely will add it in the upcoming year.

The survey of 806 large employers with 401(k) plans was fielded December 2009 through February 2010. Among the key findings:

• The majority have not adopted auto enrollment for their own 401(k) plan,althoughnearly all large employers with 401(k) plans are at least somewhat familiar with the concept. Less than half (42 percent) of respondents report that their 401(k) plan includes auto enrollment. Fewer (28 percent) report that their 401(k) plans have an auto escalation feature that raises employee contributions annually by a set percentage of salary.

• The majority (58 percent) of employers with auto enrollment report that they used it only for new hireswhen they adopted the feature. Just over one-third (35 percent) enrolled automatically all nonparticipating employees who were eligible for the plan.

• Of those employers who auto enrolled only new hires at adoption, only 11 percent report that they have auto enrolled all nonparticipating employees at least once since then.

Reasons to Auto Enroll

Employers were most likely to identify the following as “major reasons” that companies offer automatic features:

• It helps employees save more for retirement (74 percent).

• Itis easier to pass nondiscrimination testing(49 percent).

• It demonstrates that we are a socially responsible company(35 percent).

Reluctance Remains

When asked why they do not have auto enrollment for their 401(k) plan, employers without it most frequently cited employee-related challenges such as:

• Concern thatemployees would not like auto enrollment (30 percent).

• Costs(20 percent).

• Contentment with the status quo (14 percent).

• Lack of information(10 percent).

When employers without auto escalation were asked to explain their reasons for not including this feature in their 401(k) plan, the most frequent responses related to employees and included:

• The company thinks that employees would not like it(66 percent).

• The company thinks that employees would find it confusing (52 percent).

• The company is concerned about increased contribution matching costs (35 percent).

Employers that auto enroll only new hires were asked why they do not auto enroll all nonparticipating employees who are eligible for the plan. As with the reasons expressed for not having automatic features, employee-related challenges were the reasons most frequently cited for limiting auto enrollment to new hires.

Missed Opportunity

“Too many employers are not taking advantage of a simple, effective and popular tool to help their workers save for retirement,” said Michael Herndon, manager of financial security at AARP. “Despite concerns to the contrary, research shows that employees overwhelmingly appreciate participating in an auto-enrolled retirement savings plan, which could provide a competitive edge to employers who want to recruit and retain the best possible workforce.

“The good news for employers is that auto enrollment is easier—and more popular—than you think," said Herndon. “Employers have a tremendous opportunity to help employees start saving for retirement, and there are many resources available to help simplify this process.”

Employers seeking more information about how to automate their retirement savings program can visit the AARP-affiliated site Retirement Made Simpler, Herndon noted.

Stephen Miller is an online editor/manager for SHRM.

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