A new study by Lincoln Financial Group (NYSE: LNC) and an employer retirement savings coalition finds that 94% of plan sponsors believe that automatic enrollment features help boost participation in employee-sponsored retirement/401(k) plans, as well as improve both deferral rates and investment performance.
However, the study notes that automatic enrollment features have not caught on as fast as their documented success would suggest.
Insurers like Philadelphia area-based Lincoln Financial have long advocated that automatic plan features offered through employer-sponsored retirement programs better prepare people for retirement financially.
The survey, co-sponsored by Retirement Made Simpler, the coalition formed by AARP, the Financial Industry Regulatory Authority (FINRA) and the Retirement Security Project (RSP), explores plan sponsors’ perspective on automatic retirement plan features including automatic enrollment, automatic escalation and qualified default investment alternatives (QDIAs).
The report also finds that 85% of plan sponsors report that automatic features are especially effective in helping participants who consider themselves less educated on retirement matters; and that plans with automatic escalation experienced deferral rates of 8% or higher. That’s compared to the average deferral rates of 4% or less for the majority of plans in America.
Almost all–97% –of plan sponsors who have adopted the bundle of automatic enrollment, automatic escalation and QDIA say the advantages outweigh any perceived disadvantages. Lincoln Financial says this reinforces the value of the full bundle rather than a single feature approach.
However, adoption has been slower than the industry would like.
According to the Plan Sponsor Council of America, fewer than half of plan sponsors have adopted auto escalation and enrollment to date. A Lincoln Lincoln Retirement Power study reveals that while new communication channels have emerged since the advent of auto features, the channels have not kept pace with cultural and generational shifts or the evolution of plan design.
Only 51% of sponsors say they offer customized communication. And only half (50%) have revamped communication materials since the introduction of auto features.
Lincoln Financial believes employees need personalized and outcomes-based communication and education to meet their goals and boost their “retirement readiness.”
The survey “confirms what we intuitively believe: Automatic features are highly effective,” says Chuck Cornelio, president of Retirement Plan Services at Lincoln Financial. “Employers who offer these features in their plans will help Americans take charge of their retirement.
“But just like any other plan design innovation, auto solutions do not mean you can simply set it and forget it,” he adds.