The “2013 Universe Benchmarks Report” found participation rates in DC plans have reached their highest levels since Aon Hewitt began tracking such data in 2002. On average, 78% of employees participated in a DC plan in 2012, compared with 75% in 2011 and 68% in 2002.
The report also showed that as the markets have rebounded, average DC plan balances have reached their highest levels since 2006. The average total plan balance in 2012 was $81,240, up significantly from $57,150 in 2008.
However, Aon Hewitt’s analysis showed employee savings rates remain flat, suggesting more work is needed to continue to help employees achieve retirement security.
“It is encouraging to see more people participating in DC plans–the impact of automatic enrollment has been astounding,” said Patti Balthazor Bjork, director of Retirement Research at Aon Hewitt. “Companies are definitely moving in the right direction when it comes to encouraging financial wellness among their workers, but there is certainly opportunity to do more.”
According to Aon Hewitt, the rise in participation rates is largely driven by an increase in the number of employers that automatically enroll employees in their DC plans. Today, 59% of employers automatically enroll employees in their company's DC plan, compared with 34% in 2007. On average, participants subject to automatic enrollment had a participation rate of 81%, nearly 20 percentage points higher than those without automatic enrollment.
In addition, the report showed employees continue to save at rates insufficient to support adequate long-term savings goals. The average pre-tax contribution rate remained flat from 2011 at 7.3% of pay. Most concerning, said Aon Hewitt, is that employees are not saving enough to take advantage of employer matching contributions. Nearly 28% of employees contributed below the employer match threshold, potentially sacrificing tens of thousands of dollars in retirement savings over the course of a person's career.
"Once they are enrolled in the plan, inertia takes over for many employees and they make few adjustments to their DC plans," said Bjork. "Employers can help by coupling automatic enrollment with other features, like contribution escalation, that enable employees to increase their savings rate over time. Combined, these can make a big impact on employees' long-term financial outlook."
Aon Hewitt's analysis covered more than 140 defined contribution plans, representing 3.5 million eligible employees. Report highlights can be found here.