During a year of market volatility, increased inflation, and fear of recession, automatic enrollment 401(k) and 403(b) plans continue to get participants on track to save for retirement. John Iekel, a Senior Writer with the American Retirement Association, summarized findings from the T.Rowe Price 2023 Reference Point Annual Benchmarking Report.  He reports that in 2022, “a mere 37% of employees in a workforce participated in a plan.”

While employers whose plan had an automatic enrollment feature experienced an 86% participation rate!  In addition, companies with auto enrollment plans have been adding higher default contribution rates. A 3% default rate, which had been the standard, has been outpaced by a 6% rate.  An RTD client who implemented automatic enrollment saw an almost 50% increase in participation in just three years.  Studies show employees are willing to save but often don’t take the initiative themselves.  They are comfortable saving at whatever default rate the plan prescribes, and those that don’t want it can always opt out. But in most cases, the opt out rates are nominal, and participants continue to have the benefit of saving for retirement.

To further move the needle, recently passed legislation, SECURE 2.0, also mandated that all newly established retirement plans be automatic enrollment plans as of January 1, 2025. Research shows the benefits of incorporating automatic enrollment in retirement plans far outweigh the negatives. If you have questions on this strategy in your plan, please contact RTD Employer Retirement Plan Team at retire@rtdfinancial.com.

*The participation rates and contributions rates referenced above were found in this article: https://www.asppa.org/news/auto-features-delivered-%E2%80%9922.