Automatic enrollment can have a powerful influence on participant saving and investment behaviour, finds a Vanguard study.
The study, Automatic enrollment: The power of the default, says aut-enrollment more than doubles participation rates among new hires at American companies.
The participation rate for new hires was 91% under auto-enrollment versus 42% under voluntary enrollment. After three years, 89% of participants hired under auto-enrollment were still participating versus 51% of participants under voluntary enrollment who had chosen to join the plan.
Auto-enrollment also raises plan participation rates most dramatically among young and low-income workers, groups for whom participation rates are traditionally very low under voluntary enrollment designs.
“Employees earning less than US$30,000 had a participation rate of 87% under automatic enrollment versus 22% under voluntary enrollment,” notes the study. “Similarly, nine of every 10 employees younger than 25 were plan participants under automatic enrollment, versus one-quarter under voluntary enrollment.”
Read: One in 11 opt out of auto-enrollment
The study also finds contribution rates rising among voluntary enrollment participants and participants automatically.
“Most notable is the fact that among all eligible employees, automatic enrollment plus an automatic increase feature leads to higher employee contributions over time.”
The study is based on more than 500,000 eligible newly hired employees in 460 plans. The data sample consists of newly eligible employees who were hired between Jan. 1, 2010, and Dec. 31, 2012, and who were still employed by the plan sponsor as of June 30, 2013.
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