Defined contribution plans should employ automatic features such as auto enrollment and auto escalation in order to help participants save for retirement, according to a Defined Contribution Institutional Investment Association white paper released Thursday.
The white paper, “Best Practices When Implementing Auto Features in DC Plans,” includes case studies with three companies that have implemented auto features in different ways to address concerns that many plan executives have about auto features.
For example, the white paper asserts that some plan executives believe participants would only feel comfortable with very low default contributions, and that too much participation would result in much higher matching costs with their companies. But the case studies demonstrate this is not true.
“I guess what some of the key takeaways are that plan sponsors have had some very favorable experiences with auto enrollment,” said Marla Kreindler, partner at Morgan, Lewis & Bockius, one of the authors of the white paper, in a telephone interview.
The plan executives in the three case studies — are Balfour Beatty Construction, Deluxe Corp. and the Travelers Cos. Inc. — are saying, “Now that we know what we know, we're going to try to go back and be a bigger proponent of auto-enrollment and try for the levels to be higher, the auto-escalation to be higher and try to make it even more effective for our participants,” Ms. Kreindler said.
Among the best practices the white paper recommends are to establish auto-enrollment of all current and future employees, to set the deferred percentage at no lower than an initial 6%, and to employ an automatic annual deferral rate increase of one to two percentage points, to a maximum of no lower than 15%.
The white paper is available on DCIIA's website.