Automatic enrollment has been adopted by 51% of defined contribution plans, according to a Mercer survey. Also, 6% plan to add auto-enrollment in the near future and 18% are actively evaluating it.
Of those plans with auto enrollment, 45% had participation rates of 90% or more, compared to 7% of plans without auto enrollment.
Also, 62% with auto enrollment used a default contribution rate of 3% of salary, while 20% used a default rate higher than 3%, and 11% used a 2% default rate. Seven out of 10 plans also used an automatic contribution increase feature, where plans increase deferral rates each year.
What we are seeing is a milestone in defined contribution retirement plans, Amy Reynolds, a Mercer principal and defined contribution retirement plan consultant, said in a news release. The old hesitancy by employers to force employees to make contributions has given way to the more pressing challenge of inadequate retirement savings.
Ms. Reynolds added that 58% of respondents cited inadequate retirement savings by employees as the top reason for adding auto enrollment to their plans.
Plan executives must do more to guard against participants believing that a 3% default contribution rate is sufficient, Ms. Reynolds said in the release.
The survey, which was conducted between Sept. 27 to Oct. 7, covered 173 corporate and non-profit DC plan executives.