Almost 60% of workers who participated in early testing of an enrollment tool by Vanguard chose to have their 401(k) contributions automatically increased each year, the firm announced on Tuesday. By comparison, 49% of new hires who used the traditional enrollment process opted to automatically increase their contributions each year.
Enroll Now is an online enrollment process created by Vanguard that asks participants three questions: how much they want deducted from their paycheck, whether they want to increase that contribution annually and by how much, and what they want to invest in. The interactive form is pre-populated with suggested choices that employees can modify, or they can use the traditional enrollment process.
Research for the Enroll Now tool was conducted between August and December on a single large 401(k) plan. Now it’s being used by more than 530 plans.
Vanguard also found that workers who used the Enroll Now tool had a higher average contribution rate, too: 8.2% compared with 7.5% chosen by Vanguard participants in 2013.
Furthermore, completed enrollments increased by 30% with Enroll Now.
“With longer life expectancies and decades spent in retirement, it is more important than ever for American workers to save adequately for retirement,” Rebecca Katz, principal of participant strategy and development at Vanguard, said in a statement. “By providing participants with simple, pre-set and one-click decisions, Enroll Now should enable more employees to easily take advantage of their workplace retirement benefit because they’re not overwhelmed by having to determine how much to save and which funds to invest in.”
Enroll Now mitigates two common behavioral finance challenges in retirement planning, according to Vanguard. First is that having too much choice sometimes results in no choice being made at all. It also satisfies participants’ increasing desire to enroll online instead of on paper.
Check out Too Many Choices = No Decisions on ThinkAdvisor.