U.S. employees are participating in employer-sponsored DC plans at a record high rate, says a recent report from Aon Hewitt. And this is a direct result of the use of automatic enrollment.
Aon Hewitt analyzed the DC saving and investing behaviours of more than three million employees across 120 large companies. The results show that more than three quarters (75.8 %) of eligible employees participated in their company’s DC plan in 2010—the highest level since the consulting firm began tracking this data in 2002.
This record-high participation rate is, for the most part, due to the rapid adoption of automatic enrollment. Sixty percent employers automatically enrolled employees into their DC plans in 2010, up from 24% in 2006.Employees are participating in employer-sponsored DC plans at a record high rate, says Aon Hewitt, as a result of the use of automatic enrollment.
For employees who were subject to automatic enrollment 85.3% stayed in their DC plan, that’s 18 percentage points higher than those that were not subject to automatic enrollment. Aon Hewitt’s has analyzed the DC saving and investing behaviors of more than 3 million employees across 120 large companies. Results show that more than three quarters (75.8 %) of eligible employees participated in their company’s defined contribution plan in 2010 — the highest level since the company began tracking this data in 2002.
This record-high participation rate is for the most part due to the rapid adoption of automatic enrollment. Three in five employers automatically enrolled employees into their defined contribution plans in 2010, up from 24% in 2006. For employees who were subject to automatic enrollment it was found that 85.3% participated in their DC plan, 18
However, Aon Hewitt also found that workers who are automatically enrolled in a plan may actually decrease the amount of money they contribute. In regards to this Pamela Hess, director of retirement research at Aon Hewitt cautioned, “Saving even just 1% percent less over a career has a dramatic impact on accumulation, ultimately, it can lead to nearly a 15% loss in retirement income.”
She added, “To drive higher savings rates, companies should consider combining automatic enrollment with automatic contribution escalation and target-date portfolios. Additionally, defaulting workers contribution levels at, or greater than the employer-match rate will also ensure greater success for employees struggling to save for retirement.”