Automatic enrollment in small-business plans is working

Participation at 83%, versus 58% for plans with voluntary enrollment, Vanguard study finds

Jul 12, 2018 @ 12:08 pm

By InvestmentNews

Corroborating behavioral finance insights on saving habits, a survey by Vanguard of 8,900 small-business retirement plans found that those having automatic enrollment enjoyed an 83% participation rate, versus 58% for plans with voluntary enrollment.

According to the survey, some 63% of employees at businesses that use Vanguard's small-business retirement plan service participated in their 401(k) plan, versus 61% in 2016, Vanguard said in a release.

Taking into account employee and employer contributions, Vanguard found that the average participant contribution rate was 9.7% in 2017, up from 9.3% the year before. The percentage of income deferred increased with job tenure and age, the survey found, from 5.2% for employees age 25 and younger to 10.6% for those age 65 and over.

Almost all of the Vanguard small-business plans — 96% — offer target-date funds as their qualified default investment alternative. More than two-thirds of participants use target-date funds and 59% are invested in a single TDF.

About 80% of plans offer a Roth feature, and nearly 100% of plans offer eligible participants the ability to make catch-up contributions, Vanguard said.

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