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Mercer Data Study Shows DC Participants Fare Better With Automated Plan Features

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During the recent market downturn, defined contribution (DC) participants who used automatic rebalancing and deferral increase in their retirement savings accounts saw greater balance increases, by as much as 26%, according to a Mercer study of 1.2 million DC plan participants from October 2008 through April 2010.

The data study results, released Thursday, July 8, reinforced the benefit of automated plan design features, according to Mercer, a provider of benefits administration outsourcing based in Norwood, Massachusetts. The company is a wholly owned subsidiary of Marsh & McLennan Companies.

The data showed that participants who contributed to their plan while using a deferral increase and automatic rebalancing saw an average account balance increase of 60%. Those who contributed with rebalancing only saw an average increase of 47% and those who contributed with a deferral increase only saw an average increase of 43%.

Average account balance increases were 34% for all plan participants, including those who used no automated plan features. Participants who made an account exchange during the same period did slightly worse, with an increase of 30%, than those who did not, with 35%.

“Everyone involved in providing or administering defined contribution retirement savings plans knows that the biggest challenge is participant inertia,” said Dave Tolve, U.S. retirement business leader for Mercer’s outsourcing business, in the release. “Once enrolled, participants seldom engage with their plans, and when they do it can sometimes lead to adverse outcomes. By adding features like automatic rebalancing and automatic deferral increases, we believe plan sponsors can capitalize on participant inertia to drive more positive retirement savings outcomes.”

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