Automatic enrollment has been anything but automatic in recent years, despite praise from consultants and promotion by providers and others.
Auto enrollment enjoyed a jump in adoption rates by defined contribution plans for several years after the passage of the Pension Protection Act of 2006. However, the growth rate recently has been slowing, according to several surveys and data from large record keepers.
“We found that the plans that wanted to put in auto enrollment did put it in thanks to the Pension Protection Act,” said Rob Austin, director of retirement research at Aon Hewitt, Lincolnshire, Ill. “We're still left with this cohort who don't want it.”
Lori Lucas, the Chicago-based executive vice president and defined contribution practice leader for Callan Associates Inc., predicted that ”in the future, we expect a slower pace” of plans adopting auto enrollment.
“Unlike target-date funds, I don't think auto enrollment will increase dramatically,” agreed Robert Benish, executive director and interim president of the Plan Sponsor Council of America, Chicago. “Companies are saying 'What's the cost-benefit analysis?' In today's economy, plenty of people need jobs. You don't have to have an overly rich benefits package.”
Statistics back up those views.
Research conducted every two years by the consulting firm Aon Hewitt, Lincolnshire, Ill., found the percentage of defined contribution plans using auto enrollment climbed from 19% in 2005 to 34% in 2007 and then 58% in 2009, then slipped to 56% in 2011 and moved up to 59% in 2013.
Annual surveys by investment consultant NEPC LLC also found increases post-PPA: 26% in 2006 to a high of 53% in 2011, then down to 49% in 2012 and up to 51% last year.
Cost is a big reason for eschewing auto enrollment. Others include the effort to administer and monitor the process, as well as a corporate philosophy.
“Some (employers) will want their employees to take an active choice” in saving for retirement, said Aon Hewitt's Mr. Austin. In some cases, executives whose plans have high participation rates might decide it's not worth the time, cost and effort to add relatively few more participants, he said.
Added Ross Bremen, a partner at NEPC in Boston: “Plans that can afford to roll out auto features have done so,” he said. “Generally, sponsors that have financial flexibility — whether large or small — are doing so.”
Recent annual surveys by Callan Associates show a stubborn resistance to auto features among defined contribution plans that haven't already adopted them. An overwhelming majority of plan executives who don't offer auto-enrollment said it is unlikely they will do so in the near future.
“The number one reason is cost,” said Ms. Lucas. Other reasons include a belief by plan executives that auto enrollment isn't necessary and that this feature “doesn't fit into the corporate culture,” she said.
The latest annual survey by PSCA, published last October, found 47.2% of plans offered auto enrollment in 2012 vs. 45.9% in 2011, up from 38.4% in 2009. Larger plans were more likely to offer auto enrollment than smaller plans, Mr. Benish said. Aon Hewitt, however, found plan size didn't always matter, said Mr. Austin.
Aon Hewitt's survey results also contrasted with comments from several consultants and record keepers who said employers with both a defined benefit plan and a DC plan were less likely to offer auto features than employers with only a DC plan.
Aon Hewitt's survey said 64% of employers with DB and DC plans offered auto enrollment vs. 53% of employers with only a DC plan.
Large record keepers also are finding moderating growth trends for auto enrollment among their clients.
Fidelity Investments, Boston, reported 24.9% plans for which it provides record keeping offered this feature in the third quarter of 2013 compared to 17.6% for the third quarter of 2009 and 1.8% for the third quarter of 2006.
“The largest plans acted first because they have more people and more resources,” said Donna Norwood, Fidelity's vice president of defined contribution products. “As more sponsors think of defined contribution as a replacement pension plan, I think auto enrollment will have greater growth.”
Auto enrollment adoption rates among clients of Vanguard Group Inc., Malvern, Pa., have been growing modestly in recent years as well — two or three percentage points a year since 2009, reaching 34% last year, according to company data.
Auto enrollment “is primarily a large-plan phenomenon,” said Jean Young, senior research analyst for the Vanguard Center for Retirement. “Smaller firms have been slower to get on the bandwagon.”
Adoption rates among clients of T. Rowe Price Retirement Plan Services, Baltimore, have been moving up a few percentage points a year, reaching 61% last year vs. 52.9% in 2009. “The majority offer it because they see the value,” said Francisco Negron, head of client services.
Although encouraging more clients to adopt auto enrollment is one goal, Mr. Negron said there's room for improvement among plans already offering this feature, such as raising default rates and re-enrolling employees. “We can do more,” he said. “The tools are available. Let's maximize the use of them.”
