Employers Embrace Proactive Steps to Improve Savings Rates

Auto-enroll and auto-increase take off; HSAs used for long-term savings

By Stephen Miller, CEBS Apr 2, 2014

Momentum continues toward employers adopting proactive ways to help employees achieve their retirement goals and improve their financial well-being, according to the latest Bank of America Merrill Lynch 401(k) Wellness Scorecard, using data from plans the firm administers.

Results from the annual report show that:

  • The number of 401(k) plan sponsors adopting auto-enrollment increased 16 percent in 2013, while the adoption of auto-contribution increase features grew by 25 percent.

  • Plans offering both auto-enrollment and annual auto-increase saw a 20 percent uptick.

  • Adoption of professional saving and investment advice services grew by 14 percent.

"It's been encouraging to see companies increasingly use intuitive plan design strategies and other services to make their 401(k) plans more accessible and easy to use," said Kevin Crain, senior relationship executive for Bank of America Merrill Lynch, in an interview with SHRM Online. "Plans with a wide range of automatic features, for instance, have higher participation and contribution rates than plans with fewer or no features, which leads to increased long-term savings. Of employees that are auto-enrolled or have their contributions auto-increased, 90 to 95 percent of them never opt out."

Employers now feel they have a responsibility not only to offer a plan, but to make sure employees are using it to their full advantage, Crain noted. "There had been a fear employees would see auto features as too paternalistic and rebel. The good news is we don't see that."

When auto-enrollment began to take off following passage of the Pension Protection Act in 2006, "employers tended to use an initial low deferral rate, say 3 percent of salary. But they found if they didn't automatically increase that deferral rate, employees just sat there. Now we're seeing employers becoming more aggressive on the initial default rate, starting at 4, 5 or 6 percent, to get participants to maximize the employer's match and, beyond that, increasing the deferral rate by 1 percent a year. And opt-out rates have still remained low."

HSA Savings vs. Spending

Crain also noted a dramatic shift in the last two to three years toward health savings accounts tied to high-deductible health plans, along with employers taking an integrated approach to retirement and health savings benefits.

"Historically, we saw 74 cents of every dollar being put into an HSA spent in the same year. That's starting to change as employers educate employees how to think about their spending habits in these accounts and the advantages of saving for long-term needs, including health care expenses during retirement, which can be sizeable. This involves not just saving more, but letting the savings build and investing it."

Linking 401(k)s more closely to HSAs can help participants think about where their savings dollars should go, Crain noted, adding that "some employees are even tying the investment menus together, creating a longer-term savings mentality for participants in the HSA, and emphasizing the tax-advantaged ways they can save using 401(k)s, HSAs and other programs, to secure their financial future."


Stephen Miller, CEBS, is an online editor/manager for SHRM.

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