Two new surveys show larger defined contribution plans are leading the way in the evolution of retirement plans as the U.S.'s primary retirement plan vehicle.
More defined contribution plans are using auto-enrollment features, a survey from the Defined Contribution Institutional Investment Association said.
The third biennial survey of 471 defined contribution plan executives conducted between December and February shows DC plans with more than $200 million in assets have continued to embrace auto enrollment over the past several years, with 62% saying they have the feature, compared with 56% in 2012 and 44% in 2010.
The survey shows, however, that automatic contribution escalation has yet to see a similar increase, with 48% of DC plans with more than $200 million utilizing that feature, the same as in 2012, and just above the 46% that used it in 2010.
Plans with more than $200 million in assets that use both auto-enrollment and auto-escalation features reported 14% of participants have retirement savings rates higher than 15%, while only 6% of respondents save that much with plans that do not offer both features.
Plan size overall can affect utilization of features, the survey said. Among small plans with less than $50 million in assets, 23% of plans have not really considered using auto enrollment, while 31% have not really considered using auto escalation.
Barriers to defined contribution plan executives offering those features remain the same as in previous surveys, with philosophical opposition as the most cited reason; 21% of plans with more than $200 million stated the utilization of such features would be “too paternalistic.”
Lori Lucas, executive vice president and defined contribution practice leader for Callan Associates and co-author of the report on survey findings, said there's a “big disconnect between what (plans) think is optimal and what is being implemented.”
Overall, 64% of plans with more than $200 million in assets recommend optimal savings rates of higher than 10%, but only 29% of overall plans have actual savings rates that match that.
“That creates a problem in terms of helping people getting to a good retirement outcome,” Ms. Lucas said in a telephone interview.
Separately, a J.P. Morgan Asset Management survey of 756 DC plan executives in January said more than 60% of plans with more than $250 million in assets and 45% of all plans are using auto enrollment, while nearly half of those large plans and one-third of all plans are utilizing auto escalation.
Still, among all plans surveyed, only 48% feel confident about how suitable their participants' asset allocations are. Executives at plans with more than $250 million in assets feel slightly better, at 56%.
The report on the survey said for those plans with a large percentage of participants constructing their own portfolios from a DC plan lineup, “there is reason for this doubt.” For each age range of participants who construct their own portfolios, there is a very wide range of equity exposures.
“Many younger workers may not have enough exposure to equities given their long investment horizon, while older workers may have too much exposure,” the report said.
