The responsibility of saving for retirement in the public sector is shifting from the employer to the employee in many jurisdictions.
“Society has now decided that the individual is responsible for their retirement plan,” Mike Guarasci, chief financial officer of ICMA-RC, said during a press briefing in New York. “We’ve shifted from defined benefit to defined contribution. Under defined benefit, you had professionals running the money, you had asset allocation and investment management run by professionals. Today you are your own CIO.”
New research from ICMA-RC, a recordkeeper and investment manager for about 9,000 public-sector plans and the Center for State and Local Government Excellence, a public-sector research center, examines the attitudes and behaviors of public-sector employees regarding retirement savings and issues driving their plan participation.
These findings are contained in a report titled “Nudging Deferral Rates Within Public Sector Supplemental Retirement Plans.” This report presents the results of a national survey of 400 state and local government employees, assessing their perceptions of auto-enrollment into supplemental retirement plans.
With a goal of helping their employees save for retirement, government agencies often offer a supplemental retirement plan, but thus far, few have begun to auto-enroll their employees into these plans.
According to Joshua Franzel, president and CEO of the Center for State and Local Government Excellence, the attention on features like auto-enrollment and auto-escalation largely focused on private-sector plans.
“Around 2006, you saw a sea change with a lot of private-sector plans adopting auto-enrollment,” Franzel told media. “In the public sector, not so much. We saw some innovators … like South Dakota, which in 2009 passed automatic enrollment.”
In particular, the research investigates the impact of varying default deferral rates on an employee’s likelihood to stay in the plan and at what deferral rate. According to Franzel, this has not been focused on before from the public-sector perspective, especially from the employees’ view.
Respondents in this study were assigned, at random, to a path that proposed automatic enrollment into a supplemental retirement plan at either an unspecified percentage, a default deferral rate of 1%, a default deferral rate of 4%, or a default deferral rate of 7%.