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Home » Auto enrollment strengthens retirement savings: Vanguard
CU System

Auto enrollment strengthens retirement savings: Vanguard

June 15, 2015

VALLEY FORGE, Pa. (6/15/15)--A new study from Vanguard suggests that the main challenge of employer-sponsored retirement savings plans--getting people to participate and contribute--is being met by sponsors through design planning features such as auto enrollment.

"The first step in retirement savings is participation," said Jean Young, lead author of the report and a senior research analyst with the Vanguard Center for Retirement Research. "Over the past decade, we've seen a meaningful jump in total participation rates. Three-quarters of eligible workers now participate in their employer's plan, up from two-thirds 10 years ago, underscoring the impact of autopilot plan designs."

Improved plan design will ultimately lead to better outcomes for retirement plan participants, Vanguard said.

Plan sponsors have sought to make participation the default, with widespread use of features such as automatic enrollment and automatic deferral increases. At year-end 2014, 36% of Vanguard plans had implemented auto enrollment, a 50% increase since 2009, and 60% of newly hired employees participating in Vanguard 401(k) plans were automatically enrolled.

Although auto enrollment was traditionally used only with newly hired employees, sponsors of half of Vanguard plans have now chosen to apply it to eligible nonparticipants. In addition, seven in 10 auto enrollment plans have implemented automatic annual deferral-rate increases.

Another positive trend is a marked shift toward optimally designed portfolios for participants. The value of age- and risk-appropriate portfolio construction choices is most prominently reflected in the continued growth of target-date funds, particularly as the default investment option.

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