More than 30 percent of the 401(k) plans administered by T. Rowe Price Retirement Plan Services are automatically enrolling participants at a 6 percent or greater deferral rate, according to the company's annual benchmarking report.

That represents a notable increase, as just 17 percent of plans deployed as aggressive of a strategy in 2011.

About 38 percent of plans are auto-enrolling participants at 3 percent of salary; another 13 percent enroll workers at 4 percent; and almost 11 percent automatically defer 5 percent of salary.

The fact that more sponsors are defaulting participants at a 6 percent rate is indicative of a break in the tendency to default at 3 percent of salary, which has been the trend since passage of the Pension Protection Act in 2006.

“This represents a fundamental shift and acknowledgement that 3 percent default deferral rates will not provide enough savings for an adequate retirement,” the report said. In 2011, nearly half of plans automatically deferred participants at 3 percent.

The Baltimore-based firm recommends an annual savings rate of 15 percent of salary, which represents the higher end of recommended rates typically offered by industry.

The average participant deferral rate was 7.1 percent in 2015, roughly about where it has been since 2007.

But factoring the company match gets many of the participants in the T. Rowe universe close to the recommended 15 percent savings rate. The report shows that 40.5 percent of sponsors will match up to 6 percent of salary when participants contribute as much on their own.

Sponsors are consistently expressing a desire to see their employees increase savings rates, according to T.Rowe Price.

But in 2015, only 38 percent of participants increased their deferral rate on their own, a fact that makes the case for automatic increase features, according to the report.

Only 51 percent of sponsors had an automatic enrollment feature in 2015, a rate level with 2014 and up from about 40 percent in 2011.

Of those employers that automatically enroll employees, 69 percent also have an automatic increase feature, most typically at a 1 percent annual rate.

How sponsors and plan advisors present the automatic increase feature has a significant impact on how many participants take advantage of it, the report found.

In 2015, when participants were given the option to “opt in” to an automatic increase, only 11 percent selected the option.

By comparison, when sponsors used an “opt out” feature, 65 percent used the automatic increase feature.

“Most participants will not opt out of this increase,” the report says. “Plan sponsors should consider offering auto-increase as an opt-out feature since this produces a six-times higher adoption rate than using opt in.”

Overall participation rates have showed marginal improvement since 2007. In 2015, 66.5 percent of eligible workers participated in a savings plan, down a bit from the previous year, and up from 61 percent in 2007.

Auto-enrollment is a clear game changer when it comes to participation rates in T. Rowe Price administered plans. In 2015, the participation rate was 88 percent in plans that automatically enrolled workers, compared to 48 percent in plans that do not automatically enroll eligible employees.

T.Rowe Price pulled data from its large market sponsor clients, which consists of 662 defined contribution plans and 1.6 million participants. All told, T. Rowe Price is the recordkeeper for more than 3,500 plans, accounting for nearly 1.9 million plan participants.

Instant Insights /

T. Rowe Price sees change in trend of 3 percent auto-deferral rates

More From HR Executive

Related Stories

Recommended For You