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June 12, 2012 at 10:38 AM
In a recent study of its retirement clients, New York Life Retirement Plan Services found higher default deferral rates in 401(k) plans with auto enrollment lead to higher participant retention and proactive asset allocation selection.
According to the company, this counters “the auto-enrollment myth that higher auto-deferral rates result in participants opting out of plans in larger numbers.”
The New York Life analysis indicates that plans auto enrolling their participants at higher deferral rates have lower participant opt-out rates. Plans implementing auto enrollment with a default deferral rate of greater than 3% have consistently experienced lower opt-out rates than plans with lower default rates, year over year. Plans with less than 4% default rates experienced 14% opt-out rates, versus 10% for plans with greater than 3% default deferrals.
The study also shows plans that auto-enroll participants at a rate greater than 3% of salary have a 95% overall participation rate—superior to auto-enrollment plans with less than a 3% deferral rate, which have 88% participation on average.
