Don't Miss

401k Auto-Enrollment Should Be Monitored

401k Auto Enrollment Should Be Monitored

401k plan auto-enrollment is a retirement industry topic that retirement plan committees frequently discuss.  401k plan auto-enrollment can be positioned to have a positive impact on plan participants by helping them to grow a significant and meaningful 401k account balance   But, does 401k plan auto-enrollment always work as intended?  The answer is, No!  At the conclusion of a Plan Sponsor University (TPSU) Fiduciary Education Program held at Washington University in St. Louis, Missouri, TPSU Founder and CEO, Fred Barstein spoke with Robyn, a TPSU Program attendee. Robyn has Treasury oversight duties for the company which employs approximately 4,500 people.  Robyn is a member of the Retirement Plan Committee and she has responsibility for financial aspects of the plan and the plan audit.   Learn how this company experienced an unintended consequence after implementing the 401k plan auto-enrollment feature; and, how they turned that into a positive.  The company now maintains a 99% participation rate among plan eligible employees!

Full Transcript Here

Fred Barstein:
This is Fred Barstein with 401kTV. Just completed a TPSU program at Washington University. I was going to say University of Washington, but that’s different. In St. Louis. And I’m here with Robyn. Welcome Robyn.

Robyn:
Thank you.

Fred Barstein:
Okay if we ask you a few questions?

Robyn:
Sure.

Fred Barstein:
Okay, great. So before we do, a little bit about your role and the size of your organization?

Robyn:
Sure. So my name is Robyn. Our company has approximately 4500 employees. I work in the treasury group. I serve as a non-voting committee member. But I handle the audit of our retirement plans, and the financial aspects of the plans.

Fred Barstein:
Great. So during the program, you mentioned something about, you had changed your deferral rate, and it had maybe an unintended consequence.

Robyn:
That’s exactly right.

Fred Barstein:
Can you explain that a little bit?

Robyn:
So about five years ago, we decided as a committee to introduce auto-enrollment and an auto-escalation feature. And we were enrolling our participants at 4% auto-deferral rate. And after we instituted that, we actually went back at the next quarter, and found that our overall plan deferral rate declined, because when employees were selecting a deferral rate, they were actually selecting something higher than 4%. So then we did go back and start to begin to enroll employee deferrals at 6%.

Fred Barstein:
Right. And where is your match at?

Robyn:
Our match is 50% of the first 6%.

Fred Barstein:
Right.

Robyn:
Yes, exactly.

Fred Barstein:
It made more sense.

Robyn:
Exactly.

Fred Barstein:
And you had said employees trust you, so they thought, “Oh, maybe 4% is what I should be doing.”

Robyn:
Right, right, which turns out wasn’t really the case. We also have an auto-escalation feature that increases 1% each year at a maximum 10%.

Fred Barstein:
Up to 10.

Robyn:
Yes. And we have very, very little… We have an opt-out feature, but we see very, like less than 1% actually choose to opt out.

Fred Barstein:
Less than 1%, wow.

Robyn:
Both auto-enroll and auto-escalate.

Fred Barstein:
So our employees really trust us to take that role and help them reach their retirement goals.

Robyn:
Well, we all… The key is not to make change when you see it’s necessary, right?

Fred Barstein:
Right.

Robyn:
So final question, just a couple of things you learned today that you may want to take back?

Fred Barstein:
So one thing was that, from the ideal plan design. So we kept that auto-escalate feature at 10%, and we’ve been talking the last couple of quarters, should we remove a cap at all? Should we let the, is it 401(g) limits, kick in?

Robyn:
Right, right.

Fred Barstein:
But maybe something around the 12% might be more appropriate. So we might. I’m going to take that back to the committee and really get a sense of what we think that might…

Robyn:
The research is showing about 12. Because if you have a match of 3%, now you’re at 15.

Fred Barstein:
15.

Robyn:
And you’re in good shape.

Fred Barstein:
Exactly.

Robyn:
Great. Well thanks for your time today.

Fred Barstein:
Thank you.

Robyn:
And thank you for watching 401kTV. Stay tuned.

x

Check Also

Plan Audit Process

Plan Audit Process Includes 401k Partners

Plan Audit Process Includes 401k Partners Plan Audit processes are required for some 401k plans based upon size or the number of company employees.  When it comes to audits, most entities being audited want nothing more than to have the ...