Auto 401k, Where Is It Going And What Impact Is Is Having?

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Presentation for Human Resources professionals that discusses the Auto 401K and employee satisfaction results

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Auto 401k, Where Is It Going And What Impact Is Is Having?

  1. 1. <ul><li>Presentation by: Michael Herndon – AARP </li></ul>Automatic 401(k)s: Where is it Going, What Impact is it Having?
  2. 2. Today’s Topics <ul><li>Who is Retirement Made Simpler? </li></ul><ul><li>What is an Automatic 401(k) Plan? </li></ul><ul><li>Plan Sponsor Trends and Research </li></ul><ul><li>Plan Participant Trends and Research </li></ul><ul><li>Putting it all together: Case Study </li></ul>
  3. 3. www.Retirementmadesimpler.org
  4. 4. What Is An Automatic 401(k)? <ul><li>Uses inertia in a POSITIVE way by setting defaults to: </li></ul><ul><ul><li>Participating in plan </li></ul></ul><ul><ul><li>Likely appropriate investments </li></ul></ul><ul><ul><li>Satisfactory deferral rates </li></ul></ul><ul><li>Always leaves decisions up to employees </li></ul><ul><li>Proven effective by behavior finance studies </li></ul><ul><li>Affirmed by employee surveys </li></ul>
  5. 5. What Is An Automatic 401(k)? <ul><li>Support at the highest levels – “We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save and that’s why we’re going to expand it to more people.” </li></ul><ul><li>President Barack Obama </li></ul>
  6. 6. Plan Sponsor Trends and Research Source, PSCA 52 nd Annual Survey, September, 2009
  7. 7. Plan Sponsor Trends and Research ‘ Fidelity Record Kept Data: Corporate DC Qualified Auto Features Plans,’ December, 2008
  8. 8. Plan Sponsor Trends and Research <ul><li>Vanguard 2008 “How America Saves:” </li></ul><ul><ul><li>Quadrupling of automatic enrollment in client plans since 2005 </li></ul></ul><ul><ul><li>One-third of total participant population has automatic enrollment </li></ul></ul><ul><ul><li>Of those, two-thirds now feature automatic annual increases in savings rates, up from one-third in 2005 </li></ul></ul><ul><ul><li>Auto-enroll plans had an overall participation rate of 84% in 2008 compared with 60% for plans with voluntary enrollment </li></ul></ul>
  9. 9. Plan Sponsor Trends and Research Source, PSCA 52 nd Annual Survey, September, 2009
  10. 10. Plan Sponsor Trends and Research ‘ 10th Annual Transamerica Retirement Survey ,’ April, 2009
  11. 11. Plan Sponsor Trends and Research ‘ 10th Annual Transamerica Retirement Survey ,’ April, 2009
  12. 12. Plan Participant Trends and Research <ul><li>“ New employees hired under automatic enrollment designs have participation rates dramatically higher than employees hired under voluntary enrollment designs (86% vs 45%).” </li></ul><ul><ul><ul><ul><li>— “ Measuring the Effectiveness of Automatic Enrollment,” Vanguard Center for Retirement Research </li></ul></ul></ul></ul><ul><li>Particularly beneficial for those least likely to participate in a 401(k) plan: women, minorities, and low-income workers. </li></ul>
  13. 13. Plan Participant Trends and Research <ul><li>Retirement Made Simpler commissioned a study of Americans conducted by Porter Novelli’s annual ConsumerStyles ® survey and found: </li></ul><ul><ul><li>Consumers’ attitudes towards automatic 401(k) features softened from 2008 to 2009 indicating less certainty among workers. </li></ul></ul><ul><ul><li>Employees automatically enrolled in a 401(k) still are overwhelmingly positive about them. </li></ul></ul>Automatic Enrollment Employed Adults Were Automatically Enrolled 2008 2009 2008 2009 Positive (Net) 77% 69% 92% 88% Very 33% 26% 54% 44% Somewhat 44% 43% 38% 44% Negative (Net) 23% 31% 8% 11% Very 5% 9% 1% 1% Somewhat 18% 22% 7% 10% Specific question asked: Generally speaking, how do you feel about a 401(k) plan that automatically enrolls employees unless an employee chooses to opt out?
  14. 14. Plan Participant Trends and Research <ul><ul><li>Automatic escalation remains popular although with greater uncertainty </li></ul></ul>Automatic Escalation Employed Adults Enrolled in Automatic Escalation 2008 2009 2008 2009 Positive (Net) 65% 57% 91% 87% Very 23% 18% 60% 40% Somewhat 42% 39% 31% 47% Negative (Net) 35% 43% 8% 13% Very 9% 15% 1% 2% Somewhat 26% 28% 7% 11% Specific question asked: Generally speaking, how do you feel about automatic escalation of 401(k) contributions, where, for example, a company would automatically increase an employee’s contribution to their 401(k) account for 1% each year?
  15. 15. Plan Participant Trends and Research <ul><ul><li>Employees reported much less loyalty due to employers offering retirement benefits in 2009 than 2008. </li></ul></ul>Agreement with Statement I feel more loyal to my company when they help me to save for my retirement All Employed Adults Employed Adults Whose Companies Offer a 401(k) Plan Participate in a 401(k) Plan Were Automatically Enrolled Enrolled in Automatic Escalation 2009 49% 49% 53% 50% 53% 2008 53% 53% 59% 62% 68%
  16. 16. Plan Participant Trends and Research
  17. 17. Plan Participant Trends and Research
  18. 18. Investor Education <ul><li>Automation should be accompanied by EDUCATION. </li></ul><ul><li>More employees are apt to be engaged in the message because they have money invested </li></ul><ul><li>Challenge them: Are you saving enough? </li></ul>
  19. 19. Investor Education <ul><li>Personalize </li></ul><ul><ul><li>Participation status </li></ul></ul><ul><ul><li>income level </li></ul></ul><ul><ul><li>primary language </li></ul></ul><ul><li>Provide resources and tools </li></ul>
  20. 20. Putting It All Together: Company Success Story <ul><li>2003: Company worked with provider with experience implementing auto 401(k)s </li></ul><ul><li>2004: Auto-enroll all new non-union employees </li></ul><ul><li>2006: Educated eligible employees who weren’t participating </li></ul><ul><ul><li>Mailed letters detailing the automatic 401(k) process. </li></ul></ul><ul><ul><li>Enrolled at a 4% (to take advantage of full company match) in a lifecycle fund </li></ul></ul>
  21. 21. Putting It All Together: Company Success Story <ul><li>Union Workers </li></ul><ul><li>Evraz negotiated through their bargaining unit </li></ul><ul><li>Union accepted an automatic 401(k) plan as long as it included an opt-out feature. </li></ul><ul><li>Set the savings rate at two percent with a one percent match. </li></ul>
  22. 22. Putting It All Together: Company Success Story <ul><li>Results: </li></ul><ul><li>Participation grew substantially </li></ul><ul><ul><li>From 50% to 97% for non-union </li></ul></ul><ul><ul><li>From 40% to 70% for union workers </li></ul></ul><ul><li>Employee feedback overwhelmingly positive </li></ul><ul><li>Administration costs remained the same as pre-automatic enrollment days </li></ul>

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