Employers are increasingly putting retirement savings on autopilot for their workers.
About 62% of businesses with a 401(k) plan used automatic enrollment in 2020, up from 60% the year prior and 46% a decade ago, according to the Plan Sponsor Council of America, a trade group.This feature lets an employer divert a portion of workers’ paychecks into a 401(k), either immediately or after a few months, if that worker hasn’t signed up voluntarily.
Auto-enrollment leverages worker behavior (inertia, in this case) to their advantage. Workers receive a paper or digital notification ahead of time and can opt out — but most do not.
Vanguard Group, one of the largest 401(k) providers, found that 92% of new hires were still saving in the 401(k) plan three years after being automatically enrolled; in plans with voluntary enrollment, just 29% were still saving.
Companies are also beefing up the automated savings rate for workers, in a bid to help them build a bigger nest egg.
Last year marked the first time more employers used a 6% “deferral” rate rather than 3%, which had been most common. (This is the share of a worker’s paycheck that is saved automatically.)A third of businesses with a 401(k) plan chose 6% in 2020, while 29% used that lower rate, according to the Plan Sponsor Council of America.
