To improve the long-term financial outlook for workers, a new survey from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc, reveals that the majority of companies now offer automatic features in their 401(k) plans to ensure that workers are saving enough to receive full company matching contributions over time. According to Aon Hewitt's survey of approximately 100 companies with defined contribution (DC) plans, 29 percent of employers automatically enroll participants in the plan at a savings rate that is at or above the company match threshold. Another 27 percent of employers automatically enroll individuals below the full match rate, but automatically escalate contributions over time so that workers will eventually be saving enough to receive the full company match.
"In the past, employers automatically enrolled workers into 401(k) plans at low rates and workers often wouldn't increase their contributions enough to reach the full company match-to the detriment of their retirement savings," explained Rob Austin, director of Retirement Research at Aon Hewitt. "Because many employers gauge the success of their plan by the number of workers saving enough to receive the full match, they understand that they need to give workers an added boost by either starting them off at a more robust savings rate or automatically escalating contributions over time up to, or beyond the match threshold. That extra savings can have a remarkable impact on workers' long-term savings outlook."
Aon Hewitt's survey also found:
- 8 percent of companies automatically enroll participants below the full match threshold and have contribution escalation as an opt-in feature
- 70 percent of companies responding to the survey have automatic enrollment
- Among plans with automatic enrollment:
- 7 percent default above the full company match level
- 34 percent have default rates at the full company match level
- 59 percent default below the full company match level
- Of companies that have not implemented automatic enrollment:
- 67 percent cite the increased cost of the match as the biggest barrier
- 37 percent are concerned about the reaction from employees
- 30 percent do not want small account balances in the plan