A MassMutual news report said that among approximately 400 plans with automatic features, those with a default rate higher than 3% have 84% participation rates compared to those defaulting at 3% or lower (72%). The study was conducted by MassMutual’s Center for Behavioral Research and written by Alison Salka, Director of Behavioral Communication and Research, MassMutual Retirement Services.
“Automatic features can help drive higher participation and savings rates, and can help participants invest appropriately,” says Elaine Sarsynski, executive vice president of MassMutual’s Retirement Services Division and chairman, president and CEO of MassMutual International LLC, in a MassMutual news release about the study. “They are becoming an extremely effective tool in this effort.”
The paper, which discusses items plan sponsors should consider when studying auto plan features, contends the support for auto features is for a good reason.
“Automation is extremely effective in helping employees start saving, saving more, and investing appropriately,” the paper asserts. “It is an extremely effective tool to help employees accumulate sufficient retirement income. Considering that defined contribution plans have become the primary vehicle for millions of American workers, providers and employers need to take every opportunity to facilitate saving.”
Salka discusses how plan sponsors can automate enrollment, investment selection and deferral amounts and the advantages of each – coming down strongly in support of automatically increasing participants’ savings rates, for example.
“Inertia, or the tendency to do nothing, is a powerful inclination in all of us,’ Salka writes. “Historically, it’s been detrimental to retirement planning. However, it can be turned around to work for us, instead of against us. Automatic deferral increase (ADI) is an excellent example of this. “
The report can be accessed here.