New analysis from The Principal shows automatic enrollment features in 401(k) plan designs can drive better savings behavior without dramatically affecting participation.
However, Barrie Christman, vice president of individual investor services at The Principal points out most plan sponsors tend to set their default rate at an insufficient level.
Employers offering automatic enrollment in 401(k) plans must choose a default investment fund and savings rate, requiring employees to actively opt-out if they choose not to participate. Participating employees accept the default fund at the default rate, or select different funds and rates.
Client data from The Principal shows that plans with an automatic enrollment feature defaulting at 3 percent1 produce an average deferral of 6.3 percent. This is lower than the average deferral of 6.8 percent for plans without an automatic enrollment feature2. In contrast, the average deferral is 7.1 percent for plans that have a 6 percent default automatic enrollment feature3.
Most participants automatically enrolled in their plan sponsor’s retirement plans either accepted the default rate or chose to defer even higher, even as the default rate increased from 3 percent to 6 percent. In fact, at a 3 percent default rate, twice as many participants chose to defer more (36 percent) rather than opt out completely (15 percent) or at a rate lower than the default (3 percent).
The following tables compare participant deferral rates at a 3 percent default and a 6 percent default:
| 3% Default Rate | ||||||
| Deferral Rate | % of Total Participants | Avg. Deferral % | ||||
| Opted out at 0% | 15% | 0.0% | ||||
| Deferring at >0% to <3% | 3% | 1.5% | ||||
| Deferring at default of 3% | 45% | 3.0% | ||||
| Deferring at >3% | 36% | 6.7% | ||||
| 6% Default Rate | |||||||||||||
| Deferral Rate | % of Total Participants | Avg. Deferral % | |||||||||||
| Opted out at 0% | 19% | 0.0% | |||||||||||
| Deferring at >0% to <6% | 14% | 2.9% | |||||||||||
| Deferring at default of 6% | 49% | 6.0% | |||||||||||
| Deferring at >6% | 18% | 11.8% | |||||||||||
Recommended For You
Participation rates
Automatic enrollment significantly boosted participation in retirement plans. The data reveals a 20 percent increase in participation in plans with an automatic-enrollment feature6 compared to participation in plans without the feature7.
Further, automatic enrollment at 6 percent increased opt outs by just 4 percentage points (19 percent) over the 3 percent automatic-enrollment deferral rate (15 percent).
Savings rates with employer match
Client data indicates that combining automatic enrollment with an employer matching contribution helps drive an even better savings rate. The tables below show the savings rates of participants who are both automatically enrolled and receive a stated employer match:
| 3% Default Rate | |||
| Savings Rate with | % of Total | ||
| Deferral and Match | Participants8 | ||
| <3% | 4% | ||
| 3 – 5.99% | 19% | ||
| 6 – 10.99% | 45% | ||
| 11+% | 32% | ||
| 6% Default Rate | |||
| Savings Rate with | % of Total | ||
| Deferral and Match | Participants9 | ||
| <3% | 2% | ||
| 3 – 5.99% | 5% | ||
| 6 – 10.99% | 31% | ||
| 11+% | 61% | ||
Nearly twice as many participants (61 percent) reach an overall savings rate greater than 11 percent when their employers’ plan defaulted them at 6 percent rather than 3 percent (32 percent). Twenty-eight percent of participants in plans with a stated employer match but without automatic enrollment10 save 11 percent or more.
“In order to generate sufficient retirement income, we believe most retirement plan participants should be saving 11-15 percent of their pay—including employer match—throughout an entire working career,” Christman said. “It’s clear that participants who are automatically enrolled at a higher level are more likely to hit that all-important savings range.”
Christman added that implementing an auto-escalate program, which automatically increases participants’ deferral amounts by certain percentages over set amounts of time, along with automatic enrollment is another way for plan sponsors to help participants reach their retirement savings goals. “Our data supports coupling the two programs to achieve the most successful plan design, especially if the automatic enrollment default rate is lower,” she said.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
