The trick to getting workers to save for retirement is to do it for them, according to Vanguard. The company issued its annual How America Saves report on Tuesday, which found automation is the key to getting employees to save and increase contributions.
More than a third of plans administered by Vanguard — including more than half of the firm’s contributing participants — adopted automatic enrollment as of the end of 2013. Five years ago, less than a quarter of plans had adopted automatic enrollment.
Participation is higher among auto-enrolled workers. Vanguard found 82% of workers who were automatically enrolled in their plan stayed in, compared with 65% of workers who voluntarily signed up.
“401(k) and other defined contribution plans have enabled millions of American workers to accumulate savings for retirement. Automatic programs have played a key role in this success,” Jean Young, senior research analyst for Vanguard’s Center for Retirement Research and lead author of the report, said in a statement.
Vanguard analyzed data from its full-service recordkeeping plans for the How America Saves report, including more than 3 million participants.
Almost 70% of plans with automatic enrollment also feature automatic escalation. The large majority of those — 65% — increase annual contributions by 3% or less. Vanguard recommends a contribution rate of between 12% and 15%.
Vanguard announced last week that its Enroll Now tool helped increase the percentage of workers who chose to have their 401(k) contributions automatically increased each year to almost 60%, compared with 49% of new hires who used a traditional enrollment process.