Our fourth biennial Defined Contribution (DC) Plan Sponsor Survey offers insights into the power of being proactive to help position more participants for greater retirement funding success. This year’s research highlights how proactive plans and proactive advisors and consultants are more likely to offer industry best practices and experience higher levels of overall satisfaction across a broad range of metrics. We present these findings in four parts covering plan sponsor goals, plan design, target date fund (TDF) usage and working with advisors and consultants.

View the DC Plan Sponsor Survey Findings overview >
 

Continued adoption of proactive automatic features

With proactive plan design programs, such as automatic enrollment and automatic contribution escalation, plan sponsors can offer effective strategies to help position more participants on stronger retirement investment paths. The safe harbor protections offered by these features, when used in conjunction with a plan’s qualified default investment alternative (QDIA), help make them a powerful choice for plan sponsors looking to increase participation rates and help their employees gradually step up contributions to more appropriate saving levels than many participants elect on their own.

This year’s research shows that 55% of plan sponsors now offer automatic enrollment, up 28% from our first survey, in 2013.

  • 23% automatically enroll only new hires
  • 20% automatically enroll new hires and have conducted a one-time sweep for employees not participating in the plan
  • 11% automatically enroll new hires and periodically automatically enroll employees not participating in the plan

More than half of plan sponsors offer automatic enrollment for new hires, with most of those also sweeping non-participating employees into the plan

EXHIBIT 7: WHAT METHOD OF AUTOMATIC ENROLLMENT, IF ANY, DOES YOUR PLAN OFFER?
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Note: 2013 total n=796; 2019 total n=838.
Source: J.P. Morgan Plan Sponsor Research 2013, 2019.

Fewer plan sponsors—38%—offer automatic contribution escalation, though this represents a remarkable 81% increase from the 21% of plan sponsors offering this type of plan feature in 2013.

  • 14% automatically escalate contributions for new hires and conducted a one-time sweep of all participants when the program was started
  • 13% do so for new hires and periodically sweep participants who are not increasing contributions
  • 9% do so for new hires only

Significantly more plan sponsors offer automatic contribution escalation than in 2013

EXHIBIT 8: WHAT METHOD OF AUTOMATIC CONTRIBUTION ESCALATION, IF ANY, DOES YOUR PLAN OFFER?
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Note: 2013 total n=796; 2019 total n=838.
Source: J.P. Morgan Plan Sponsor Research 2013, 2019.

Concerns appear largely misplaced

Plan sponsors who choose not to offer automatic features often cite similar concerns. The No. 1 reason is the belief that participants are responsible for saving on their own. Although this reflects a valid philosophical view, most of the other concerns appear largely unfounded, based on our research.

Top reasons for not offering automatic enrollment Top reasons for not offering automatic contribution escalation:
• Employees are responsible for saving on their own (39%) • Employees are responsible for saving on their own (37%)
• We would get too much employee pushback (19%) • We would get too much employee pushback (20%)
• One contribution rate isn’t right for everyone (19%) • One contribution rate isn’t right for everyone (14%)
• Too much fiduciary risk (9%) • One contribution rate isn’t right for everyone (14%)

Concern: Fear of employee pushback

Reality: Our 2018 DC Plan Participant Research shows that most participants believe their employer should encourage employees to contribute to the plan and are in favor or neutral about automatic enrollment and automatic contribution escalation. Moreover, 95% of those automatically enrolled in their plans and 97% of those whose contributions were automatically increased on an annual basis say they are satisfied.

Concern: One contribution rate isn’t right for everyone

Reality: For most, any contribution rate is better than nothing, and 33% of automatically enrolled participants admit it is unlikely they would be in the plan otherwise. However, getting participants into the plan is only half the battle, since saving too little remains the norm. Half of plan sponsors in this year’s survey report their participants contribute 5% or less, and four out of five (81%) acknowledge that this is too low.

Concern: Too much fiduciary risk

Reality: The Pension Protection Act of 2006 created safe harbors for both automatic enrollment and automatic escalation programs when used in conjunction with a plan’s QDIA.

Plan re-enrollments: more discussions, but little action

A plan re-enrollment is a one-time process by which all existing participant assets and contributions are defaulted into the plan’s QDIA, unless a participant opts out. This initiative also enjoys safe harbor protections and can make sense for plan sponsors concerned that their participants may not be implementing prudent asset allocations from their core menu invest¬ment selections, a common problem for many plans.

There appears to be greater awareness of plan re-enrollment as an option in this year’s survey results compared with six years ago, with more plan sponsors now saying that they have thought about conducting one. Though actual implementation remains low at just 4%, a much higher 44% report that they at least considered doing so but decided against it—a 57% increase from the 28% in 2013.

More plan sponsors have considered re-enrollments compared with 2013, but few have actually decided to conduct one

EXHIBIT 9: WHICH OF THE FOLLOWING BEST DESCRIBES YOUR CURRENT VIEW REGARDING A ONE-TIME RE-ENROLLMENT OF ALL PARTICIPANT ACCOUNTS?
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Note: 2013 total n=796; 2019 total n=838.
Source: J.P. Morgan Plan Sponsor Research 2013, 2019.

Reasons for choosing not to implement re-enrollment include fear of employee pushback, too much work, too much fiduciary risk and lack of recordkeeper support. However, these concerns also seem largely misplaced. Our 2018 DC Plan Participant Research found nearly all participants who had gone through a re-enrollment, where their funds were moved to a TDF, were satisfied. Re-enrollments also enjoy safe harbor protections, and most recordkeepers are well equipped to implement them.

Similar to the automatic feature concerns, the fear of employee pushback may be groundless. Both participants and plan sponsors who have gone through plan re-enrollments report high levels of satisfaction. Safe harbor protections also help to buffer fiduciary risk.

There likewise seems to be an opportunity to help educate a sizable number of plan sponsors about the potential benefits of re-enrollment. Approximately one out of five (22%) have not considered a plan re-enrollment because they do not believe they know enough about it or are unaware it is an option.

Large plans still leading the way in innovation

Similar to findings from our past surveys, larger plans continue to be more likely to offer auto-features compared with smaller plans. More than 70% of larger plans offer automatic enrollment vs. 55% of smaller plans, and 47% offer automatic contribution escalation vs. 38% of smaller plans. Larger plans also more frequently offer TDFs in their lineup, at 76% vs. 62%.

Larger plans are more likely than smaller plans to offer proactive plan design programs

EXHIBIT 10: PLAN SPONSORS OFFERING AUTO-FEATURES AND TDFS, BY PLAN SIZE
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Note: Small plans n=669; large plans n=169.
Source: J.P. Morgan Plan Sponsor Research 2019.

IMPLICATIONS

There are clear gains in the number of plan sponsors positioning participants on a stronger retirement savings path through proactive plan design features. Getting more participants into the plan through default programs and then actively increasing their contributions on an ongoing basis make it easy to help employees help themselves when it comes to their retirement savings.

Automatic contribution escalation is a key part of these efforts. Our recent Ready! Fire! Aim? 2018 research on how participant savings behaviors interact with TDF design found that without automatic contribution escalation, many automatically enrolled participants simply keep their contributions at a minimal rate, around 3%, across their entire careers—far below the general 10% rule-of-thumb retirement savings rate recommended by many industry experts.

However, when automatic enrollment and automatic contribution escalation are used together, these programs can be powerful in driving positive plan results. The plan can increase participation rates and usually overall satisfaction levels as well, while participants benefit from accumulating increased contribution assets to help build more secure levels of retirement funding. This positive impact can be especially powerful for younger employees, increasing the odds they start investing early, with inertia helping to keep them on a prudent savings course over a lifetime of building retirement wealth.