Fewer than half of large companies' 401(k) plans include automatic enrollment

A growing number of employers have added an automatic enrollment feature to their 401(k) plans in the past few years. AARP commissioned a national telephone survey of large employers with 401(k) plans to better understand employer attitudes toward and experiences with two automatic 401(k) features: automatic enrollment and automatic escalation.

The vast majority (94 percent) of employers surveyed report that they are either very familiar or somewhat familiar with automatic enrollment in 401(k) plans. While familiarity with automatic escalation is lower than familiarity with automatic enrollment, a majority (78 percent) of employers also report that they are familiar with automatic escalation.
Although nearly all large employers with 401(k) plans are at least somewhat familiar with automatic enrollment, the majority have not adopted it for their own 401(k) plan, according to AARP, which is a nonprofit, nonpartisan membership organization for people at least 50 years old. Specifically, fewer than half (42 percent) of respondents report that their 401(k) plan includes automatic enrollment. Fewer (28 percent) report that their 401(k) plans have an automatic escalation feature.
The majority of employers with automatic enrollment (58 percent) report that they automatically enrolled only new hires when they first adopted automatic enrollment. Just over one-third (35 percent) automatically enrolled all non-participating employees who were eligible for the plan.
Of those employers who automatically enrolled only new hires at adoption, only about one in ten (11 percent) report that they have automatically enrolled all non-participating employees at least once since adopting automatic enrollment.
Employers were most likely to identify the following as major reasons that companies offer automatic features:
  • It helps employees save more for retirement (74 percent)
  • It is easier to pass nondiscrimination testing (49 percent)
  • It demonstrates that we are a socially responsible company (35 percent)
When asked why they do not have automatic enrollment for their 401(k) plan, employers without automatic enrollment most frequently cited employee-related challenges such as:
  • Concern that employees would not like automatic enrollment (30 percent)
  • Costs (20 percent)
  • Contentment with the status quo (14 percent)
  • Lack of information (10 percent)
When employers without automatic escalation were asked to explain their reasons for not including this feature in their 401(k) plan, the most frequent responses included:
  • The company thinks employees would not like it (66 percent)
  • The company thinks employees would find it confusing (52 percent)
Additionally, one-third of employers without automatic escalation (35%) indicated that the company is concerned about matching costs.
Employers that automatically enroll only new hires were asked why they do not automatically enroll all non-participating employees who are eligible for the plan. As with the reasons expressed for not having automatic features, employee-related challenges also were the reasons most frequently expressed for limiting automatic enrollment to new hires. 
About the survey:
AARP commissioned Woelfel Research, Inc., to conduct this telephone survey of 806 large employers with 401(k) plans. Partial funding was provided by Retirement Made Simpler, a coalition formed by AARP, the Financial Industry Regulatory Authority (FINRA), and the Retirement Security Project (RSP). For more information, visit www.RetirementMadeSimpler.org. The survey was fielded from December 15, 2009, to February 24, 2010, and results were weighted by company size. For more information on the survey, please contact S. Kathi Brown of AARP Research & Strategic Analysis at (202) 434-6296. You can read the full report here.
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