According to the investment management firm, nearly six in 10 of the employees who joined their company’s 401(k) plan during pilot research on the new online Enroll Now process also chose to automatically increase their savings by a modest amount each year, which could increase retirement savings by 40%, or $100,000, over 20 years.
Enroll Now distills the online plan enrollment process into three critical decisions: how much to save per paycheck; whether to increase that amount annually and by how much; and which investments to choose. Suggested choices for each of those are determined by the employer and are pre-populated onto a simple, interactive form. Employees can then select or modify those choices. They can also bypass Enroll Now altogether and use the traditional enrollment process.
During the pilot research, Vanguard found:
- Fifty-nine percent of the employees who used Enroll Now chose to automatically increase their savings annually;
- A higher average contribution rate of 8.2%, compared with the average contribution rate of 7.5% chosen by Vanguard participants in 2013; and
- A 30% increase in completion of the online enrollment process.
Vanguard developed Enroll Now based on behavioral finance research showing that choice overload in retirement plans—in this case, the steps required to enroll in the plan, select a contribution rate and choose an investment—can stifle any action at all. The aim is to offer employees pre-selected, easy-to-make choices, making the process less overwhelming.
“With longer life expectancies and decades spent in retirement, it is more important than ever for American workers to save adequately for retirement. By providing participants with simple, pre-set, and one-click decisions, Enroll Now should enable more employees to easily take advantage of their workplace retirement benefit because they’re not overwhelmed by having to determine how much to save and which funds to invest in,” says Rebecca Katz, principal of Participant Strategy and Development at Vanguard, based in Valley Forge, Pennsylvania.
More than 70% of Vanguard participants with access to a smartphone or tablet will be able to use Enroll Now on those devices.
The pilot research for Enroll Now was conducted from August to December 2013 on one large 401(k) plan. The Enroll Now option is now being used by more than 530 plans.
More information about Enroll Now is available here.