Put employees on the path to retirement while increasing participation rates
Since the introduction of the employer-sponsored retirement plan, employees have been encouraged to participate in order to prepare for the future.
In the past, advisors and employers relied on enrollment meetings to help employees get involved in their plans. These gatherings could often be tedious, complicated, time-consuming, and expensive.
Unsurprisingly, enrollment meetings didn’t always inspire employees to sign up for their plans, select the proper investments, or choose suitable deferral rates. As a result, they became a decidedly 20th century concept desperately in need of updating.
Recent times have seen the development of such an update in automatic enrollment.
The benefits of automatic enrollment are many. For employers, it can help with avoiding compliance testing issues in addition to increasing participation. It also allows them to replace meetings about enrollment procedures with sessions that focus on financial and investment education.
For employees, it simplifies the enrollment process and helps them save for a more secure retirement. Employees also incur no additional costs, and they can opt out at any time should their circumstances change.
Employers can help employees get off to an even better start by setting default deferral percentages at an appropriate rate. In many cases, this means 5% or greater. Recent research has shown that over 80% of employees would contribute 5% of their salary in return for reliable income in retirement.1
Furthermore, plans that automatically enroll participants at a rate greater than 3% of their salary have a 95% overall participation rate—7% more than those with lower deferral rates.2
Ascensus has found that auto enrollment has proven to be effective, as participation rates among Ascensus plans that adopt our auto enrollment program are almost 10% higher than those in plans that don’t.3
In terms of sparking employee participation, automatic enrollment is a true 21st century tool that no modern retirement plan should be without.
2Source: New York Life Retirement Plan Services, June 2012
3As of February 1, 2012 .