Auto features in retirement plans can get employers to their group retirement plan goals faster while better preparing their employees for retirement, says new U.S. research.
According to a study from Lincoln Financial Group and Retirement Made Simpler explored plan sponsors’ perspective on the value of automatic retirement plan features including automatic enrollment and automatic escalation.
The study found that 94% of plan sponsors recognize the success of automatic enrollment features in helping them address their plan-related goals and that these features drive higher participation and deferral rates along with better investment performance.
Other key findings include the following:
- 85% of plan sponsors reported that automatic features are especially effective in helping participants who consider themselves less educated on retirement matters;
- Plans with automatic escalation experienced deferral rates of 8% or higher compared to the average deferral rates of 4% or less for the majority of plans in America; and
- 97% of plan sponsors who have adopted automatic enrollment and escalation say the advantages outweigh any perceived disadvantages reinforcing the value of the full bundle rather than a single feature approach.
But automatic features are not a straight-forward solution to engaging employees, says Chuck Cornelio, president, retirement plan services, Lincoln Financial Group. “Just like any other plan design innovation, auto solutions do not mean you can simply set it and forget it. Employees need personalized and outcomes-based communication and education to meet their goals and boost their retirement readiness.”
Only 51% of sponsors say they offer customized communication and only half (50%) have revamped communication materials since the introduction of auto features.
Plan sponsors agree that employee communication must shift significantly when automatic features are adopted. That means moving away from education that is technical in nature—such as how to enroll or the investments offered—to engaging participants in a more meaningful discussion about their individual savings behaviors and strategies such as their future monthly retirement income, spending power and projected retirement lifestyle.
“Conversations need to be more personalized and address each employee’s specific needs, goals and lifestyles,” says Cornelio. “It’s time to take a more proactive approach to how we plan for retirement, with more focus on the connection between our future goals and what it will take to get there.”