More than 30 percent of the 401(k) plans administered by T. Rowe Price Retirement Plan Services areautomatically enrolling participants at a 6 percent or greaterdeferral rate, according to the company's annual benchmarkingreport.

|

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

|

Related: Stop getting 401(k) participants worked up overnothing

|

About 38 percent of plans are auto-enrolling participants at 3percent 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 6percent rate is indicative of a break in the tendency to default at3 percent of salary, which has been the trend since passage of thePension Protection Act in 2006.

|

Related: 7 best practices to increase employee retirementplan participation

|

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

|

The Baltimore-based firm recommends an annual savings rate of 15percent of salary, which represents the higher end of recommendedrates 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 inthe T. Rowe universe close to the recommended 15 percent savingsrate. The report shows that 40.5 percent of sponsors will match upto 6 percent of salary when participants contribute as much ontheir own.

|

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

|

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

|

Only 51 percent of sponsors had an automatic enrollment featurein 2015, a rate level with 2014 and up from about 40 percent in2011.

|

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

|

How sponsors and plan advisors present the automatic increasefeature has a significant impact on how many participants takeadvantage of it, the report found.

|

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

|

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

|

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

|

Overall participation rates have showed marginal improvementsince 2007. In 2015, 66.5 percent of eligible workers participatedin a savings plan, down a bit from the previous year, and up from61 percent in 2007.

|

Auto-enrollment is a clear game changer when it comes toparticipation rates in T. Rowe Price administered plans. In 2015,the participation rate was 88 percent in plans that automaticallyenrolled workers, compared to 48 percent in plans that do notautomatically enroll eligible employees.

|

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

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.