A-U-T-O-MATIC

One of our primary roles, as your plan adviser, is to help you provide employees with a high-quality and easy-to-use retirement plan benefit. Employer-sponsored retirement plans are increasingly becoming a key employee benefit and necessary to attract, retain, and motivate staff. Advances in technology are increasingly allowing small businesses to provide tools to their plan participants previously only available to larger corporations with mega-sized retirement plans. In this article, we want to share two popular automated features that have statistically improved outcomes for retirement savers and provided a much easier experience to get started.

The parameters of how your plan works are completely customizable, allowing you to tailor your plan and participant experience to the needs of your company and its employees. By taking proactive and intentional steps within your plan’s design, you can set your employees up for success with little to no effort on their part. Two separate, but equally valuable, features within your plan design are automatic enrollment and automatic escalation. Automatic enrollment allows employees to automatically enter the plan at a set contribution rate once they become eligible with no action required on their part. When coupled with a Qualified Default Investment Alternative, or QDIA, your employees will have taken the first step toward a successful retirement outcome without having to fill out forms or make any difficult decisions on the front end. Automatic escalation also statistically improves participant outcomes by gradually increasing their contribution rate by a set amount, such as 1%, per year. Contributions may escalate up to a certain contribution percentage you set or up to the maximum IRS contribution limit.

These automated features have demonstrated improved participant outcomes by taking advantage of the propensity to procrastinate and put off difficult decisions. Over 60% of retirement plans offer automatic enrollment while automatic escalation has been adopted by less than 50% of plans. As for improving plan statistics, auto enrollment increases average participation by nearly 10 percentage points from around 67% to 77%! Auto escalation further improves plan statistics by guiding the saving of participants closer to 10-15% of their income needed to one day replace their paycheck. In plans with no auto escalation, only one of five participants save more than 10% of their income. Plans with auto escalation push that number to one in three participants. Our team has experienced similar results by implementing these strategies with our plan sponsors, and the employees have appreciated the additional guidance and ease of use automation provides.

Have you taken a good look at your plan’s design lately? Would it benefit your employees to consider adding automated features to improve their retirement outcome?

We believe more and more plan sponsors will adopt automated features for their participants going forward, and the resulting participant statistics will likely continue to improve. These concepts are an easy way to improve your plan today, and Rather & Kittrell is here to help you start the conversation. Let’s help drive better outcomes and provide an excellent experience for your participants.