EBRI Counters another Study
The Employee Benefit Research Institute (EBRI) said its finding that
employers adopting automatic enrollment in their 401(k) plans have also
generally increased the employer match to participant’s accounts
contradicts an earlier publication of the Center for Retirement
Research (CRR) at Boston College and by the Urban Institute. The CRR
concluded that among a sample of large 401(k) plans, match rates are
lower among firms with automatic enrollment than among those without
automatic enrollment after controlling for firm characteristics (see
“Auto Enrollment Could Lead to Reduced Match”).
An EBRI news release said there were two major limitations with the CRR/Urban Institute analysis:
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The study was based on U.S. Department of Labor Form 5500 data that
does not include specific information on 401(k) match rates. Instead,
the authors constructed an estimate for the match rate as the ratio of
employer-to-employee contributions for each 401(k) plan; and
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The study merged the Form 5500 data with information about automatic
enrollment from the Pensions & Investments database of the top
1,000 pension funds, which includes a flag indicating whether plan
administrators reported offering automatic enrollment in their defined
contribution (401(k)-type) plans.
However, this database does not report the year that the automatic
enrollment provision was adopted, so there is no way to tell from this
data source how long auto-enrollment had been implemented in a plan.
The authors of the CRR/Urban published study presented a regression
analysis on this database and produced a finding that "suggests a
negative relationship between automatic enrollment and match rates and
is statistically significant at the firm level. In particular, match
rates are about 7 percentage points lower among firms with automatic
enrollment than among those without automatic enrollment, after
controlling for firm characteristics." EBRI noted that the key word is
"suggest."
"While the authors correctly point out that although the regressions
suggest a relationship between automatic enrollment and match rates,
they do not necessarily imply that auto-enrollment causes lower match
rates," EBRI said.
EBRI also noted that the CRR/Urban Institute study conflicts with
previous EBRI research published in 2007, which surveyed Mercer Human
Resource Consulting defined benefit sponsors to gauge their recent
activity and planned modifications to their defined benefit and defined
contribution plans to determine what, if any, increases in employer
contributions to defined contribution plans were provided in
conjunction with reductions to their defined benefit plans.
Although the association between the adoption of automatic enrollment
and employer contributions to 401(k) plans was not the focus of the
EBRI study, one-third of the defined benefit sponsors surveyed
indicated that they had already increased or planned to increase their
employer match to a defined contribution plan, and 20.9% indicated that
that they had already increased or planned to increase their
non-matching employer contributions to a defined contribution plan.
There was some overlap between the two groups, but overall, 42.5% of
the defined benefit sponsors surveyed indicated that they had already
increased or planned to increase their employer match and/or
non-matching employer contribution to a defined contribution plan.
This was particularly true of defined benefit sponsors that had either
closed a defined benefit plan to new hires or frozen the plan to all
members in the prior two years or planned to do so in the following two
years.
Full results of the recent EBRI analysis will be available in the February 2010 EBRI Issue Brief at www.ebri.org.
Rebecca Moore