Most participants in 401(k)s and other defined contribution (DC) plans expect their employer to encourage them to set money aside for retirement and even provide some guidance on how much to save, according to a J.P. Morgan study we looked at last year. Fortunately, a new J.P. Morgan survey found that a growing number of businesses appear to recognize just how important old-age security and other money-related issues are to their workers. Roughly three-quarters (74 percent) of employer respondents, for instance, said that they feel they have at least a “somewhat high” level of responsibility for the overall financial well-being of their employees, up sharply from 59 percent in 2013. The most common way that employers will demonstrate such sentiment and support workers’ long-term financial well-being is to automate the saving process.
Indeed, 55 percent of all DC plans in the J.P. Morgan sample currently utilize automatic enrollment, a 28 percent jump from the first survey conducted six years ago. The use of reenrollments to sweep non-participating employees into a retirement plan is also on the rise, as is the implementation of automatic contribution escalations. Apart from enabling workers to develop positive “savings inertia,” surveyed employers also said that they believe their DC plan’s automatic features can help boost workplace morale and assist with the recruitment and retention of talent. Among the few sponsors yet to utilize automatic plan features, some fear that workers will feel their freedom of choice is being limited. That would be an understandable concern if we saw most employees quickly opt out of a plan after being automatically enrolled or reduce their contribution rate after an auto-increase. Little evidence of this behavior, though, could be found in J.P. Morgan’s data. For example, only 1 percent of the workers in the earlier survey who were automatically enrolled in a DC plan opted out. Further, 95 percent of auto-enrolled respondents reported that they are satisfied with their experience, and a third even admitted that they likely would not be participating in the company’s DC plan if they had not been automatically enrolled.
Similarly, just 6 percent of participants whose contributions were automatically escalated decreased their deferral rate, and less than 1 percent stopped contributing. Another important takeaway from the data is that employers should not only embrace the use of automatic plan features but also make an effort to incorporate auto-enrollment and auto-escalation. For example, 62 percent of participants in plans with both automatic features expect to be able to retire at their ideal age, while just 46 percent of those who were only automatically enrolled reported the same level of confidence. Moreover, eight in ten participants in plans with both automatic features expect their savings will be able to last throughout retirement, compared to just 47 percent for individuals who were only auto-enrolled. These plan features are especially beneficial for workers that require a bit of a nudge to get their retirement savings on the right track, e.g. 40 percent of participants who were notified that they need to set more money aside did not because they either meant to make a change and never got around to it (12 percent) or did not even consider doing anything to remedy their potential savings shortfall (28 percent).
Sources: J.P. Morgan