In a new survey, LIMRA, Windsor, Conn., finds most employees want their retirement contributions automatically escalated annually once they hit age 45.
"The message to employers is don't be shy about implementing an automatic escalation option in your DC plans," says Marie Rice, corporate vice president and director of LIMRA's retirement research. "Employees understand they need to boost their retirement savings, and automatic escalation is a simple way to increase the amount they are saving annually."
The online survey, which included responses from over 300 consumers participating or accessing a DC plan, found 38 percent were automatically enrolled in their DC plans. Twenty-one percent were under automatic escalation while 16 percent were under both automatic enrollment and escalation.
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When given the option of automatic escalation beginning at age 45, 22 percent of employees would like a 1 percent yearly increase, but 45 percent want a 2 percent or more automatic increase in their contributions each year, especially for those earning $75,000 or more in annual household income.
Most preretirees, ages 55-70, are unprepared for retirement, according to recent LIMRA research, and only 30 percent describe themselves as very prepared for retirement.
In the past 12 months, only 15 percent of employees, excluding those enrolled in automatic escalation plans, raised their contribution rate. Forty-two percent of employees have never changed their DC investment lineup, which is particularly true among 25-45 year olds.
Employees using automatic features are more amenable to the concept, researchers find. In fact, 54 percent want a 2 percent or more contribution increase each year. For those who don't have automatic escalation, 44 percent want a 2 percent or more annual increase when they reach the age of 45. Of this group, only 34 percent are opposed to their employer automatically increasing the contribution rate.
"Clearly, employees need help getting their savings rate to the level needed to meet their retirement goals," Rice says. "This study shows that employees want automatic escalation to improve their retirement outlook."
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