The use of automatic features in U.S. defined contribution pension plans is supporting employee financial well-being and retirement readiness, according to a new report by the Employee Benefit Research Institute.
It found when a typical DC plan sponsor adopted auto-enrolment with a six per cent default contribution, the retirement savings shortfall among plan members decreased by seven per cent.
Similarly, when the same plan sponsor also applied auto-escalation to contributions (at one per cent annually to a maximum of 12 per cent) the shortfall decreased by nine per cent and, if auto-portability was applied, the shortfall decreased by 16 per cent.
Read: 43% of U.S. DC pension plan sponsors offering auto-escalation: survey
Notably, it found younger plan members benefit the most from auto features: for plan members with 30 years of future eligibility in a DC plan, these features decreased the average retirement savings shortfall by 60 per cent.
“Plan sponsors and policy-makers need to understand the significant impact that plan design can have on participation, contribution rates and asset preservation through the adoption of automatic features,” said Craig Copeland, director of wealth benefits research at the EBRI, in a press release.
“Furthermore, these features are particularly important for individuals who have lower incomes and have been traditionally less likely to participate in a plan.”
Read: Report finds higher member participation in 401(k) plans with auto-enrolment
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