Sponsors can seek to improve retirement outcomes through automatic enrollment combined with higher initial deferral rates, an automatic increase feature, and a total automatic increase cap of at least 10%.
How to further improve outcomes
Another important method to improve outcomes is to extend the automatic enrollment design from only new hires to all eligible nonparticipants. Plan sponsors should consider using the power of inertia by employing various types of sweeps, such as reenrollment, undersaver, and automatic increase sweeps.
This analysis underscores the importance of plan design defaults, the role of inertia in retirement saving decisions, and the impact of employer plan design decisions on retirement adequacy among DC plan participants.
The importance of defaults, as well as other plan design features, is further detailed in our preview of How America Saves 2021—an examination of retirement plan data from nearly 5 million DC plan participants across our recordkeeping business. How America Saves will mark its 20th edition this summer. This preview details how thoughtful retirement plan designs leverage automatic solutions, from both a savings and investment perspective, to help improve participant outcomes.
All things being equal, stronger default designs will help improve retirement outcomes because of the effect of inertia. Sponsors should seek to take advantage of this behavioral bias when designing their DC retirement programs.