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Auto Enrollment Boosts Participation: Study

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Automated retirement savings systems work, according to Principal Financial Group Inc.

“Do it for me” retirement plan tools, such as automatic enrollment, automatic increases in amounts deferred and lifecycle investment options, increase both participation and savings rates, says Principal, Des Moines, Iowa.

The company’s recent study of participants in its retirement plans found the average participation rate is 6% higher in defined contribution plans that offer automatic enrollment.

Moreover, plans that allow employees to choose a salary-deferral rate preset by their employer, typically coinciding with the employer match, experience 6% higher participation than average, Principal says.

Other findings:

o The average annual deferral increase in plans offering automatic deferral increases option is 1.5% for an average of just over 4 years.

o 70% of plan sponsors offered a lifecycle investment option in 2005, up from 40% in 2004. By the end of 2006, more than 80% of plan sponsors were offering lifecycle investment options.

o The number of plan sponsors using a lifecycle investment option as their retirement plan’s default investment option nearly tripled in 2005 from the total reported in 2004.