Use of auto enrollment leaps, survey finds

Target-date funds are the most popular qualified default investment alternative

Oct 24, 2017 @ 11:58 am

By Robert Steyer

Auto enrollment surged in popularity among defined contribution plan sponsors, with 68% using this plan design in 2017, according to a survey by Alight Solutions published Tuesday.

"This was a surprise," Robert Austin, the Charlotte, N.C.-based director of research for Alight Solutions, said in an interview. "We thought we were at a saturation point."

Alight conducts a survey of plan sponsors — both clients and non-clients — every two years. In each of the previous four surveys, the adoption rate of auto enrollment hovered between 56% and 59% of respondents. By contrast, in 2007, only 34% of plans offered auto enrollment.

(More: Thank Richard Thaler for that bigger nest egg.)

"Companies are saying 'Why aren't we doing this?'" said Mr. Austin, noting plan managers and corporate executives seem to be overcoming fears that employees might push back against automatic enrollment. As these executives see what their peers are doing, he added, they are becoming more amenable to offering auto-enrollment.

However, auto enrollment remains overwhelmingly an option offered only to new employees — 88% of plans offering auto-enrollment in the latest survey use this approach.

TDF POPULARITY

Target-date funds are the most popular qualified default investment alternative offered to auto-enrolled participants. This year, 83% of plans that use auto enrollment used this investment option as the QDIA, well ahead of second-place target-risk funds, at 9%.

Mr. Austin said he was encouraged by the steady rise in higher default contribution rates offered by plans with auto-enrollment, reflecting a realization that participants often need to be nudged to save more. Plans auto-enrolling participants at 6% of annual pay have climbed to 30% in the latest survey representing a five-fold increase from 2007.

The traditional default rate of 3% of annual pay is still offered by 37% of plans, but that is well down from the 51% in 2007.

(More: When automatic enrollment doesn't make sense for 401(k) plans.)

The Alight Solutions survey also found that plans offering auto enrollment and/or auto escalation are raising their auto features targets. This year, for example, 56% of these plans set a target to 10% of annual pay to be subject to auto features. In 2007, only 14% of plans had this 10% auto features pay target.

The next highest auto features target last year was 6% of annual pay, which was set by 22% of plans vs. 47% of plans with this target in 2007.

The third largest auto features target this year was 15% of annual pay, which was set by 10% of plans.

The latest survey covered 333 plan sponsors with aggregate assets of $775 billion in assets and nearly 10 million participants. The online survey was conducted in the spring.

Robert Steyer is a reporter at InvestmentNews' sister publication Pensions & Investments.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video

INTV

FPA's Shannon Pike: What's next for the financial advisory profession?

As we head toward 2019 and beyond, regulation and compensation will continue to dominate the headlines. Shannon Pike of the FPA explains.

Latest news & opinion

What millionaires look for in an adviser

A list of factors that high-net-worth individuals will pay more for in regards to an adviser.

LPL rolls back recruiting policy aimed at driving more assets to its corporate RIA

LPL erases $50 million hurdle for new advisers to join so-called hybrid firms.

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print