More than one-third (38%) of health care plan sponsors are taking advantage of automatic enrollment in 2012 — up from 24% in 2006, according to the 10th annual survey of health care plan sponsors by Diversified and the American Hospital Association (AHA).Use of automatic deferral escalation increased to 24% in 2012 from only 9% in 2006. Both of these are record levels of usage since the questions were first asked in 2006.  

As a result, 73% of health care sector employees now participate in a 403(b) defined contribution plan — up from the 10-year low of 58% in 2006.    

According to the survey, the median participation rate for plans with auto-enrollment is 81% versus 64% for plans without auto-enrollment. The “opt out” rate after auto-enrollment is just 7% in 2012, down from 8% in 2011.   

However, the default deferral level with automatic enrollment is still low—typically 3% or less according to 70% of the plan sponsors; 84% said they know their default contribution rate is not high enough.

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The survey also found the percentage of health care organizations offering a matching contribution in their DC plan has nearly doubled in six years—from 44% in 2006 to 79% in 2012. Offering investment advice is also becoming more widespread: 48% of plans offered it in 2006, 67% of plans offer it in 2012.   

Another positive sign of employers working to help employees save is the prevalence of on-site retirement plan representatives—46% of plan sponsors have either full- or part-time plan representatives on site, up from 39% in 2011.  

However, according to the survey, employee plan contribution rates have been static—and low—for ten years. More specifically, participants have contributed an average of just 5% to 7% of salary to their defined contribution plan annually for the past 10 years. Contributions amounts are rising, though; the average annual contribution amount fell from a six-year high of $5,205 in 2006 to a low of $3,505 in 2009, but has improved to $4,005 in 2012.

Health care plan sponsors admit their number one challenge is to motivate employees to save adequately (80%). As a result, their measure for plan success is shifting; they said success is less about participation rate (down from 61% in 2011 to 56% in 2012 as “best indicator of plan success”) and increasingly about “income replacement ratio,” “amount saved by employee” and “deferral rate,” all of which, though small in percentage (6%, 7% and 7%, respectively), have at least doubled in importance since 2011. Together they represent a positive indicator that employers are placing greater emphasis on plan participant outcomes.

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The percentage of health care plan sponsors that said they use an adviser jumped from 79% in 2011 to 85% in 2012. According to plan sponsors, the top responsibilities of their advisers are “ongoing investment monitoring” (74%), “investment selection” (70%) and “development of investments policy statement” (54%). Only 42% said their adviser’s responsibilities included “act as the plan fiduciary.”  

Other findings from the survey include:   

• Defined benefit plans continue to be offered by 42% of plan sponsors; but many said their plans are frozen to either new employees (51%) or all employees (49%); 
• The number of health care organizations imposing a minimum age requirement for plan entry has increased over the past 10 years from 64% in 2003 to 75% in 2012.  
• Health care plan sponsors are more likely to impose a service requirement for plan entry as compared to ten years ago—53% said they did so in 2003, 65% in 2012. However, the service requirements are becoming less stringent; only 18% allowed entry at less than one year in 2003, but today, fully 55% allow entry to employees with less than one year of service. 

A total of 180 health care plan sponsors nationwide responded to the survey conducted during the second quarter of 2012. To request a copy of the survey report, send an email to RetirementResearchCouncil@divinvest.com.