Also read: Auto-enrolled Vanguard 401(k)s growing 

To drive home the point, according to Aon Hewitt's 2014 Universe Benchmark Survey, while auto enrollment brought defined contribution plan participation rates up to 84.6 percent last year, plans that didn't have auto enrollment saw participation actually drop, with only 62.4 percent opting in if it hadn't been done for them.

However, that good news comes with a caveat: employers that don't provide a high enough employee contribution rate at the time of auto-enrollment could be hurting their workers' savings rate. Employers, of course, do this for a number of reasons, one of which is to hold down the cost of employer matching funds associated with the higher participation rate.

The problem is that many employees wrongly assume that the contribution rate set at auto enrollment time is sufficient to give them a high enough rate of savings to fund retirement — which is definitely not the case, particularly if automatic escalation of contributions is not a part of the plan.

In addition, if employees don't boost contributions on their own, they may not be able to take advantage of the full amount potentially available in employer matching dollars — another handicap in building a retirement balance as the years pass.

Also, many companies add auto enrollment to their plan tend to do so only for new employees.

According to Josh Cohen, head of institutional defined contribution at Russell Investments, that means that existing employees who never got around to signing up are left out of the process.

"There's a large part of the (participant) population that doesn't get the benefit of those auto features," Cohen said. "(Sponsors need to) go back to existing employees (to implement them). Re-enrollment into QDIAs, auto escalation, (and other automatic features) are really where you will see the needle move in terms of participation for non-savers."

Photo: Josh Cohen

Default deferral rate. One might think that any default deferral rate may be better than none, so long as it gets employees contributing earlier. However, according to Cohen, if it's set too low and employees are inclined not to change it, they could wake up to the fact years down the line that their contributions have only been, say, 3 percent per year and they haven't saved anywhere near enough for retirement.

Rich Rausser, senior vice president at Pentegra Retirement Services, offers this advice for plan sponsors:

"The easiest thing to do is auto enrollment at a savings rate of 6 percent of salary, for a couple of reasons. … If you're already getting 90 percent of your people to participate in the plan (voluntarily rather than automatically) and they come in at a 5, 6, 7 percent savings rate, you don't want (the auto-enrolled people) to come in at 3 percent."

Rausser said that advisors need to do more to educate plan sponsors about "the 401(k) plan of the future," and why higher savings rates are important. "I don't want my client to wake up in 3-5 years and say, 'How come we don't have the plan design everybody else has?' This is where things are going to go in the next few years. Don't sell your participants short."

Auto-escalation. Automatically increasing DC plan contributions over time is just as important as auto-enrollment, yet experts say too few companies are doing this. Rausser called auto-escalation "the next big thing," especially because people just don't save enough and "may not be increasing contributions over time." 

However, he cautioned that "consideration has to be given to how far do you go — 8 percent? 10 percent? Based on plan design, you could have someone hit the contribution limit too early in the year" or it could affect the company match. "In certain situations, you could hit a limit; every plan is unique. Look at all the various factors that could negatively affect someone."

Then there are those who fear employees won't like being made to put more money away. Cohen, however, dismissed that. "There's always concern about participant backlash when you're re-enrolling or auto-escalating contributions," he said, "but the reality is sponsors don't hear backlash from participants; they get gratitude from participants" for helping them to save more.

Also read:

8 things you need to know about automatic features
Plan design can limit impact of automatic savings programs

Photo: Rich Rausser

Use of QDIAs/Auto investment choices. Figuring out how to choose the right investments can be intimidating, so steering participants into choices that suit their needs can be hugely helpful. And while qualified default investment alternatives may be a great way to offer participants choices, QDIAs run the risk of not being individualized enough to meet their needs.

"There's a lot of work to be done to move the default investment so that not every 50-year old has the same investment, but is given a better allocation more appropriate for his individual situation," Cohen said.

That's where managed accounts come in, allowing account holders to access personalized service. The danger with managed accounts can be their cost, so sponsors need to take care not to expose themselves to fiduciary risk by aligning with a provider whose costs are out of line. 

Finally, as Rausser noted, re-enrollment opens the door to another important item: asset allocation.

Many existing participants may not have selected wisely when they last took any allocation action, he said. 

"Are they invested and allocated properly? At the macro level, everything looks beautiful, (with a high participation rate), but at the micro level, everybody (may have) 10 percent in each fund or have everything in one (fund). So restart, refresh, re-election, and re-enrollment (can be) more valuable (than just allocating for new employees)."

In other words, just throwing on the auto-pilot switch isn't enough to get anyone to their destination.

Also read: 401(k) auto-escalation gets another boost