Auto enrollment among all defined contribution plans for which Vanguard Group is a record keeper climbed to 34% last year, up from 32% in 2012, according to a Vanguard report issued Tuesday.
The use of auto enrollment is more pronounced among larger plans — those with more than 1,000 participants — said Jean Young, senior research analyst for Vanguard's Center for Retirement Research, in an interview.
“We're at the point where 60% of plans with more than 1,000 participants have adopted auto enrollment,” Ms. Young said in an interview. “The bigger plans have looked at it and have made their call.”
The report noted the average employee contribution rate last year was 7%, down from a peak of 7.3% in 2007. The rate was 6.9% in 2012.
“The decline in average contribution rates is attributable to increased adoption of automatic enrollment,” the report said. “While automatic enrollment increases participation rates, it also leads to declining plan contribution rates when default deferral rates are set at low levels, such as 3% or lower.”
Ms. Young said the report showed a modest improvement among DC plans in setting auto-enrollment deferrals above the 3% rate offered by a majority of plans. Last year, 35% of plans offering auto enrollment established default rates above 3%. In 2012, it was 32%; and in 2011, 30%.
The report said target-date funds are the overwhelming favorite among plans for a default option — 93% for a target-date fund vs. 5% for a balanced fund and 2% for stable value and/or money market funds.
Vanguard's annual report, “How America Saves,” is based on records of 1,900 DC plans for which Vanguard is the record keeper. The plans serve more than 3 million participants; most of the plans are 401(k) plans.