auto 401k, where is it going and what impact is is having?
DESCRIPTION
Presentation for Human Resources professionals that discusses the Auto 401K and employee satisfaction resultsTRANSCRIPT
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Presentation by: Michael Herndon – AARP
Automatic 401(k)s: Where is it Going, What Impact is it Having?
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Today’s Topics
Who is Retirement Made Simpler? What is an Automatic 401(k) Plan? Plan Sponsor Trends and Research Plan Participant Trends and Research Putting it all together: Case Study
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www.Retirementmadesimpler.org
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What Is An Automatic 401(k)?
Uses inertia in a POSITIVE way by setting defaults to:◦ Participating in plan◦ Likely appropriate investments◦ Satisfactory deferral rates
Always leaves decisions up to employees
Proven effective by behavior finance studies
Affirmed by employee surveys
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What Is An Automatic 401(k)?
Support at the highest levels – “We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save and that’s why we’re going to expand it to more people.”
President Barack Obama
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Plan Sponsor Trends and Research
Automatic Enrollment Adoption among Employersby Plan Size
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1-49 1.40% 2.00% 3.50% 1.50% 1.10% 0.90% 3.50% 6.80% 11.10% 15.80%
50-199 0.80% 2.40% 2.80% 3.20% 2.10% 3.40% 8.10% 10.30% 24.70% 22.40%
200-999 0.70% 6.50% 6.60% 6.30% 9.30% 9.80% 19.10% 30.50% 40.00% 44.30%
1000-4999 7.40% 13.90% 14.60% 12.40% 16.10% 18.20% 23.90% 31.30% 48.40% 54.20%
5000+ 17.30% 19.80% 17.00% 24.10% 24.20% 30.60% 34.30% 41.30% 53.20% 56.30%
All Plan 4.20% 8.10% 9.10% 7.40% 8.40% 10.50% 16.90% 23.60% 35.60% 39.60%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source, PSCA 52nd Annual Survey, September, 2009
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Plan Sponsor Trends and Research
‘Fidelity Record Kept Data: Corporate DC Qualified Auto Features Plans,’ December, 2008
Growth in Percent of Plans Having Adopted Automatic Enrollment by Plan Size
2800%
640%327% 247% 185% 135% 204%
0%
500%
1000%
1500%
2000%
2500%
3000%
151-500 501-1,000 1,001-2,500
2,501-5,000
5,001-10,000
10,001-25,001
25,000+
2006-2008
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Plan Sponsor Trends and Research
Vanguard 2008 “How America Saves:”◦ Quadrupling of automatic enrollment in client
plans since 2005◦ One-third of total participant population has
automatic enrollment◦ Of those, two-thirds now feature automatic
annual increases in savings rates, up from one-third in 2005
◦ Auto-enroll plans had an overall participation rate of 84% in 2008 compared with 60% for plans with voluntary enrollment
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Plan Sponsor Trends and Research
2008 Percent of Plans with Automatic Enrollment by Plan Size
5.3%
14.6%
31.7%36.8%
41.5%
26.1%
5.8%10.1% 8.3%
11.6% 11.7%9.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
1-49 50-199 200-999 1000-4999 5000+ All Plans
For new hires For all non-participants
Source, PSCA 52nd Annual Survey, September, 2009
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Plan Sponsor Trends and Research
‘10th Annual Transamerica Retirement Survey,’ April, 2009
Small Company Reasons for Not Adopting Automatic Enrollment
35% 33%
9%14%15% 14%
8% 8%4% 6%4% 4%
0%
10%
20%
30%
40%
2007 2009
Participation is already high Concerned about costs
Allow employees to choose Employees not interested
Concerned about administrative complexity Concerned about current regulations
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Plan Sponsor Trends and Research
‘10th Annual Transamerica Retirement Survey,’ April, 2009
Large Company Reasons for Not Adopting Automatic Enrollment
22% 23%
15%
21%
8% 9%5% 6%
20%
13%
6% 6%
0%
5%
10%
15%
20%
25%
2007 2009
Participation is already high Concerned about costs
Allow employees to choose Employees not interested
Concerned about administrative complexity Concerned about current regulations
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Plan Participant Trends and Research
“New employees hired under automatic enrollment designs have participation rates dramatically higher than employees hired under voluntary enrollment designs (86% vs 45%).”
—“Measuring the Effectiveness of Automatic Enrollment,” Vanguard Center for Retirement Research
Particularly beneficial for those least likely to participate in a 401(k) plan: women, minorities, and low-income workers.
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Plan Participant Trends and Research
Retirement Made Simpler commissioned a study of Americans conducted by Porter Novelli’s annual ConsumerStyles® survey and found:◦ Consumers’ attitudes
towards automatic 401(k) features softened from 2008 to 2009 indicating less certainty among workers.
◦ Employees automatically enrolled in a 401(k) still are overwhelmingly positive about them.
Automatic Enrollment
Employed AdultsWere Automatically
Enrolled
2008 2009 2008 2009
Positive (Net)
77% 69% 92% 88%
Very 33% 26% 54% 44%
Somewhat
44% 43% 38% 44%
Negative
(Net)
23% 31% 8% 11%
Very 5% 9% 1% 1%
Somewhat
18% 22% 7% 10%
Specific question asked: Generally speaking, how do you feel about a 401(k) plan that automatically enrolls employees unless an employee chooses to opt out?
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Plan Participant Trends and Research
◦ Automatic escalation remains popular although with greater uncertainty
Automatic Escalation
Employed Adults Enrolled in Automatic Escalation
2008 2009 2008 2009
Positive (Net) 65% 57% 91% 87%
Very 23% 18% 60% 40%
Somewhat 42% 39% 31% 47%
Negative (Net) 35% 43% 8% 13%
Very 9% 15% 1% 2%
Somewhat 26% 28% 7% 11%
Specific question asked: Generally speaking, how do you feel about automatic escalation of 401(k) contributions, where, for example, a company would automatically increase an employee’s contribution to their 401(k) account for 1% each year?
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Plan Participant Trends and Research
◦ Employees reported much less loyalty due to employers offering retirement benefits in 2009 than 2008.
Agreement with Statement
I feel more loyal to my company when they help me to save for my retirement
All Employed
Adults
Employed Adults Whose
Companies Offer a 401(k)
Plan
Participate in a 401(k)
Plan
Were Automatically
Enrolled
Enrolled in Automatic Escalation
200949% 49% 53% 50% 53%
2008 53% 53% 59% 62% 68%
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Plan Participant Trends and ResearchParticipation Rate by Income 2000-2008
0
20
40
60
80
100
<$30,000 $30,000–$49,999 $50,000–$74,999 $75,000–$99,999 $100,000+
Income
Per
cen
tag
e
2000 2001 2002 2003 2004 2005 2006 2007 2008
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Plan Participant Trends and Research
Participation Rate by Age 2000-2008
0
20
40
60
80
<25 25–34 35–44 45–54 55–64 65+
Age Group
Pe
rce
nta
ge
2000 2001 2002 2003 2004 2005 2006 2007 2008
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Investor Education Automation should be
accompanied by EDUCATION.
More employees are apt to be engaged in the message because they have money invested
Challenge them: Are you saving enough?
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Investor Education Personalize
◦Participation status◦income level◦primary language
Provide resources and tools
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Putting It All Together: Company Success Story
2003: Company worked with provider with experience implementing auto 401(k)s
2004: Auto-enroll all new non-union employees
2006: Educated eligible employees who weren’t participating◦ Mailed letters detailing the automatic 401(k)
process.◦ Enrolled at a 4% (to take advantage of full
company match) in a lifecycle fund
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Putting It All Together: Company Success Story
Union Workers Evraz negotiated through their
bargaining unit Union accepted an automatic 401(k)
plan as long as it included an opt-out feature.
Set the savings rate at two percent with a one percent match.
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Putting It All Together: Company Success Story
Results: Participation grew substantially
◦ From 50% to 97% for non-union◦ From 40% to 70% for union workers
Employee feedback overwhelmingly positive
Administration costs remained the same as pre-automatic enrollment days