In a recent study of its retirement clients, New York Life Retirement Plan Services found higher default deferral rates in 401(k) plans with auto enrollment lead to higher participant retention and proactive asset allocation selection.
According to the company, this counters "the auto-enrollment myth that higher auto-deferral rates result in participants opting out of plans in larger numbers."
The New York Life analysis indicates that plans auto enrolling their participants at higher deferral rates have lower participant opt-out rates. Plans implementing auto enrollment with a default deferral rate of greater than 3 percent have consistently experienced lower opt-out rates than plans with lower default rates, year over year. Plans with less than 4 percent default rates experienced 14 percent opt-out rates, versus 10 percent for plans with greater than 3 percent default deferrals.
Recommended For You
The study also shows plans that auto-enroll participants at a rate greater than 3 percent of salary have a 95 percent overall participation rate—superior to auto-enrollment plans with less than a 3 percent deferral rate, which have 88 percent participation on average.
According to the study, 30 percent of participants in plans with default deferral rates higher than 3 percent proactively increased their deferral rate within a year of being auto-enrolled. That percentage has steadily increased since 2006, when only 13 percent of the population had done so.
By comparison, the percentage of those enrolled at lower rates have raised their contributions has varied between 27 percent and 26 percent over the same time period.
The analysis involved 480 plans and 800,000 participants across New York Life's retirement platform. Auto-enrollment in 401(k) plans was encouraged in the Pension Protection Act of 2006. The number of plans on the New York Life platform that have adopted auto-enrollment climbed to 61 percent as of March 31, compared with 21 percent in 2006.
© 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.
