Automatic enrollment has hit the brakes — at least for now.
Among the 53% of corporate defined contribution plans that don't offer auto enrollment, just 1% plan to offer such a feature this year, according to a Watson Wyatt Worldwide survey. Another 32% are considering offering auto enrollment next year, while 67% have no plans to do so. (The survey, to be released later this month, was based on 149 responses from plans mostly in Pensions & Investments' survey of the 1,000 largest U.S. employee benefit plans and of companies in the Fortune 500.)
“One of the downsides to auto enrollment in this economy is that for employers offering a match, automatic employee contributions means an increase in cost in matching contributions,” said Robyn Credico, director of the plan management group practice, North America, at Watson Wyatt in Arlington, Va.
In contrast, a February report by Hewitt Associates, Lincolnshire, Ill., found that while fewer companies were planning to adopt automatic enrollment because of the sluggish economy, many were still weighing the option for the coming year.
Among the roughly half of 150 midsize to large employers surveyed by Hewitt that didn't offer auto enrollment, 25% of respondents said they were somewhat or very likely to add it for new hires, and 15% said they were likely to adopt it for existing employees in 2009 — down from 57% and 27%, respectively, in 2008.
“I think we're going to see automatic enrollment slowly ramp up again once the economy has recovered,” said Pamela Hess, director of retirement research at Hewitt. “The good news is that we haven't seen anyone who's stopped doing it.”
Several industry experts and consultants agreed that auto enrollment adoption has slowed.
“It's understandable considering the current economic forces,” said Chris Lyon, a consultant at Rocaton Investment Advisors LLC, Norwalk, Conn. “We haven't seen anyone undo their automatic enrollment program, but we're also not seeing a lot of new auto enrollment either.”
David Wray, president of the Profit Sharing/401k Council of America, Chicago, said he knew of several companies that had been in the process of implementing auto enrollment but recently stopped. “There's no question that the current economy slowed down everything to a halt,” he said, declining to disclose the names of the companies. “No company is going to make this kind of change right now.”
Marina Edwards, senior consultant in Towers Perrin's retirement practice in Chicago, said she isn't aware of any companies stopping their auto enrollment plans. “More often than not we're seeing companies stick with auto enrollment, or continue with their plans to implement it, but choosing to scale back on their match to cut costs.”
In fact, the survey found that of the 94% of companies offering matching contributions, 11% have suspended the feature and 15% are considering doing so within the next 12 months.
Some 74% are not planning to suspend matching contributions, according to the survey, which was conducted between mid-March and mid-April.