If you needed any further evidence about the power of auto-enrollment, Vanguard has put out new research saying that the participation rate among those it studied came in 91 percent when new employees are automatically enrolled.
Plans with voluntary enrollment, on the other hand, see a 42-percent participation rate.
Eight in 10 automatically enrolled participants in Vanguard's study also increase contribution rates over time.
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The workers in its study — based on more than 500,000 eligible newly hired employees in 460 plans — were in their mid-30s with an average account balance of $4,000, and making around $45,000 a year.
Most of the plans surveyed default a 3 percent deferral rate; 15 percent of the plans defer a more aggressive 6 percent of salary.
Those plans offering an annual automatic increase do so at a rate of 1 percent, and 97 percent of all automatically enrolled participants were defaulted into a target date fund.
More than three-quarters of the plans offer eligibility immediately upon being hired, and 95 percent of plans enroll new participants within the first three months of being hired.
Four in 10 plans with automatic increases cap deferral rates at 10 percent. A small percentage — two in 10 — set an aggressive deferral cap between 12 and 25 percent of; while two in 10 set a relatively low deferral cap of 6 percent.
Half of the plans in the Vanguard universe that implement automatic enrollment do so only for new hires.
The trend echoes some of the findings in the recently released Callan Investment Institute's 2015 Defined Contribution study, which found that 61.7 percent of the large or mega-plans the consultancy surveyed offer automatic enrollment, primarily to new hires.
Those employers who don't utilize auto enrollment said it was low priority for them and cited expense as among the reasons for not doing so.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
