Plan sponsors need to remember the primary goal of retirement plans: namely, for participants to accrue sufficient savings to retire comfortably. Automatic enrollment increases participation rates, but that’s not the only measure of success for a retirement plan, according to Diversified, a retirement plan administration provider.
The company released a survey of companies with more than 1,000 employees on Oct. 18, “Report on Retirement—2011,” which found 37% of plan sponsors agree that helping employees accumulate income for retirement is the primary reason for offering a defined-contribution plan.
“According to Report on Retirement Plans—2011, most sponsors measure their plan’s success in terms of retirement readiness by assessing the participation rate as opposed to deferral rate adequacy or size of their participants’ retirement savings gaps,” Laura White, vice president of Diversified, said in a statement. Many industry experts now believe deferral rates or account balances are a better indicator of retirement preparedness, White added.
“Sponsors may need to embrace more holistic plan measures and use multiple metrics to engage employees,” White noted.
Automatic enrollment is already a popular feature and has been successful in increasing participation rates. Forty-seven percent of corporations surveyed said they offer it and it is especially prevalent among very large companies. Fifty-seven percent of companies with over 10,000 employees use automatic enrollment in their plans.