Auto enrollment surged in popularity among defined contribution plan sponsors, with 68% using this plan design in 2017, according to a survey by Alight Solutions published Tuesday.
"This was a surprise," Robert Austin, the Charlotte, N.C.-based director of research for Alight Solutions, said in an interview. "We thought we were at a saturation point."
Alight conducts a survey of plan sponsors — both clients and non-clients — every two years. In each of the previous four surveys, the adoption rate of auto enrollment hovered between 56% and 59% of respondents. By contrast, in 2007, only 34% of plans offered auto enrollment.
"Companies are saying 'Why aren't we doing this?' " said Mr. Austin, noting plan managers and corporate executives seem to be overcoming fears that employees might push back against automatic enrollment. As these executives see what their peers are doing, he added, they are becoming more amenable to offering auto-enrollment.
However, auto enrollment remains overwhelmingly an option offered only to new employees — 88% of plans offering auto-enrollment in the latest survey use this approach.
Target-date funds are the most popular qualified default investment alternative offered to auto-enrolled participants. This year, 83% of plans that use auto enrollment used this investment option as the QDIA, well ahead of second-place target-risk funds, at 9%.
Mr. Austin said he was encouraged by the steady rise in higher default contribution rates offered by plans with auto-enrollment, reflecting a realization that participants often need to be nudged to save more. Plans auto-enrolling participants at 6% of annual pay have climbed to 30% in the latest survey representing a five-fold increase from 2007.
The traditional default rate of 3% of annual pay is still offered by 37% of plans, but that is well down from the 51% in 2007.
The Alight Solutions survey also found that plans offering auto enrollment and/or auto escalation are raising their auto features targets. This year, for example, 56% of these plans set a target to 10% of annual pay to be subject to auto features. In 2007, only 14% of plans had this 10% auto features pay target.
The next highest auto features target last year was 6% of annual pay, which was set by 22% of plans vs. 47% of plans with this target in 2007.
The third largest auto features target this year was 15% of annual pay, which was set by 10% of plans.
The latest survey covered 333 plan sponsors with aggregate assets of $775 billion in assets and nearly 10 million participants. The online survey was conducted in the spring.