Although 87% of defined contribution executives say an optimal savings rate should be 10% or higher, a survey by the Defined Contribution Institutional Investment Association also finds that 55% of plans using automatic enrollment have only a 3% default rate.
“Clearly, there is a disconnect between what sponsors say is the optimal savings rate and what their default rate is,” Catherine Peterson, principal author of a report on the survey results, said in an interview. Ms. Peterson is vice president and director of retirement insights for J.P. Morgan Asset Management.
Among plans that don't offer automatic enrollment, 65% of executives said it was “very unlikely” they would offer this option in the next 12 months, the report said. Another 19% said it was “somewhat unlikely” they would offer automatic enrollment.
The report, issued Monday, examined results of a survey of 44 plans with automatic enrollment and 57 plans without automatic enrollment.
The primary reason plan executives don't offer automatic enrollment was an already-high participation rate by employees, Ms. Peterson said. However, DCIIA didn't ask — and respondents didn't provide information — about what were considered high participation rates.
Another top reason for not offering auto enrollment was the feeling by plan executives that automatic enrollment was “too paternalistic” and that employees would be upset by it, she added.
According to the DCIIA survey, employers offering defined benefit plans and those that do not offer company matches in DC plans are less likely to offer auto enrollment, the survey said.
DCIIA conducted the online survey of plan executives during the fourth quarter, choosing plans at random, Ms. Peterson said.
Forty-one percent of the plans in the survey had assets of $1 billion or more; and 35% had assets between $100 million and $1 billion, and the rest had assets of $100 million or less. Among respondents, 72% represented 401(k) plans, 14% were from 457(b) plans and the rest were from 403(b) and 401(a) plans.
In addition to Ms. Peterson, the other authors of the report are Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates Inc., San Francisco, and Pam Hess, director of retirement research at Aon Hewitt, Lincolnshire, Ill.
