Auto-Enrollment and Auto-Escalation
When we think about the important goals we’ve reached in our lives, like graduating from college or achieving a career milestone, the journey likely took time, perseverance, and a whole lot of hard work. But the payoff in the end are the rewards we’ve earned and the sense of pride we feel in the accomplishment.
Saving for retirement is like this, too. The journey absolutely takes time and perseverance, but the need to participate as early in life as possible is clear. So is the need to save at a high enough rate to meet real income needs later in life.
An important way to help employees of company-sponsored retirement plans make real progress for themselves is to offer auto-enrollment and auto-escalation features to retirement plans. Both can positively influence retirement outcomes. The problem is that not enough plans offer these features, and those that do, aren’t always optimized.
That’s because auto-enrollment is often introduced only for new employees. That misses a huge opportunity to include existing workers who could also be participating. And statistics tell us that even if they’re offered the choice to opt-out, most don’t and stay the course. That means even without much effort on their own, they are doing something important to contribute to their future financial success.
The other component of this is auto-escalation. It’s a feature that automatically raises employee contribution rates a little each year until they reach their target savings rate. This is really important since auto-enrollment usually starts at a savings rate of 3%, which is too low for most people to save and earn enough to accumulate what they need in retirement.
Even though automatic features aren’t right for every plan, more could benefit. Just over half of retirement plans offer automatic features so there may be room to examine your book of business and talk to plan sponsors about including these features.
We invite you to get in touch and discuss how and when to use auto-enrollment and auto-escalation models. It may just be the help “plan participants” need to reach their retirement goals.