Plan design can limit impact of automatic savings programsNews added by Benefits Pro on April 15, 2013

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By Paula Aven Gladych

Defined-contribution plan design can hurt automatic savings programs, according to T. Rowe Price.

Plans that incorporate a relatively low default rate in their automatic savings programs can result in lower savings rates overall, and many plans only offer automatic enrollment to new employees while ignoring their current employees who don’t participate in the retirement plan.

A growing number of plan sponsors have implemented automatic escalation programs, but they implement them on an opt-in basis rather than an opt-out basis, which limits their impact, according to a report from T. Rowe Price, “Getting Beyond Ordinary: Advances in Automatic Savings Program Design.”

T. Rowe Price recommends implementing auto-enrollment for employees at higher initial default rates, offering auto-enrollment to employees who aren’t currently enrolled, making auto-increases in deferral rates an opt-out option and auto-investing a qualified default investment alternative.

The goal is to evolve these programs and combine them in ways that produce greater results per dollar of employer cost.

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