Auto-Enrollment Drives Up the Numbers

Updating recent auto-enrollment research across its retirement clients, New York Life Retirement Plan Services found that over time, plans with auto-enrollment saw steady deferral increases and sustained high participation, versus the opposite effect in plans without auto-enrollment.

According to the firm’s four-year study—examining plans with auto-enrollment versus those without it—plans employing this feature achieved 93% participation in the first year of auto-enrollment and 87% after four years. By contrast, plans without auto-enrollment generated a participation rate of 37% in year one and 56% in year four. In plans with auto-enrollment, the average participant deferral rate was 4.65% the first year, which grew to 6.1% in year four. In plans without the auto feature, deferrals started high, at 7.29% in the first year, but declined to 6.77%. Essentially, after four years, the deferral rate for auto-enrolled participants caught up to those who self-enrolled. (See “Higher Default Deferrals Linked to Fewer Opt-Outs.”)

“We thought there would be a bigger opt-out rate based on the sticker shock,” David Castellani, chief executive of New York Life Retirement Plan Services, told PLANADVISER. “Many plan sponsors and their advisers have been looking for solid proof that auto-enrollment works, and here it is. There isn’t a logical argument not to employ auto-enrollment.”

New York Life’s research earlier this year showed that plans auto-enrolling participants at higher deferral rates have lower participant opt-out rates and higher participation overall.

The 2012 analysis is based on 480 plans and 800,000 participants across New York Life’s retirement platform, that were examined through December 31, 2011. Auto-enrollment in 401(k) plans was encouraged in the Pension Protection Act of 2006. The number of plans on the New York Life platform that have adopted auto-enrollment climbed to 64% as of September 30, compared with 21% in 2006.