Automatic enrollment was supposed to be the killer app to help employers
painlessly increase participation rates in their 401(k) plans. And while that
may prove to be the case over the long term, one thing is becoming quite clear
right now: Automatic enrollment clearly doesn’t mean automatic results.
Despite the best efforts of many plan sponsors, participation rates in a
survey of more than 400 corporate plan sponsors remained basically the same over
the past two years—on average, 76 percent of employees now participate in their
company’s 401(k) plan, according to a new study by Deloitte Consulting.
That’s just a slight uptick from Deloitte’s 2006 survey, which found that
three-quarters of workers were enrolled in their employers’ 401(k) plans.
The marginal increase in participation rates, oddly, occurred during a time
in which the number of companies automatically enrolling workers in 401(k) plans
nearly doubled. About 42 percent of the plan sponsors polled by Deloitte have an
automatic-enrollment feature now, compared with 23 percent two years ago.
There may be a simple explanation, however, for these seemingly contradictory
results. The vast majority—roughly 66 percent—of companies that automatically
enroll their workers in 401(k) plans are doing so only for new hires.
Less than a third of companies enroll their entire workforce when they add
the auto-enroll feature.
Mark Dzierzak, senior manager with Deloitte Consulting, said the
participation rates may also lag behind the auto-enrollment adoption figures.
Some companies, he explained, may have added auto-enrollment in the past few
months, so their participation rates may not have budged much yet.
At the same time, some workers opt out of a 401(k) plan when they are
enrolled. Turnover can have an impact on participation rates too, Dzierzak
added.
“There will be a major increase in participation rates at some point in the
near future,” he said. “Just how much is unclear, but it is clear that employers
believe automatic enrollment will be successful.”
Filed by Mark Bruno of Financial
Week, a sister publication of Workforce
Management. To comment, e-mail editors@workforce.com.