A lot of retirement industry companies have allowed themselves to get caught in the rut of waiting for new legislation and rules. The fact is, there is still plenty to do thanks to a new era of retirement education. The self-funded retirement plan structure commonly known as the 401(k) plan has gained new participants and billions of dollars over the last ten years based upon provisions included in the passage of the 2006 Pension Protection Act (PPA) by the Bush Administration.
Among noteworthy provisions of that 10-year-old regulation are the removal of legal obstacles related to automatic enrollment of 401(k) and 403(b) plan participants. Liberating employers from the concerns associated with deducting retirement funds from an employee’s paycheck has spawned a new generation of participants and increased retirement plan assets. Unlike other provisions of the PPA, positive effects of automatic enrollment provisions were observed quickly after the passage and are continuing today.
What Auto Enrollment Looks Like Today
Rand Corporation published a Working Paper this month that sheds light on the Automatic Enrollment successes and statistics (of particular interest is the Discussion and Conclusion Segment starting on page 31).
- The majority of Automatic Enrollment (AE) participants who choose their own contribution rate elect to increase it above their plan’s default.
- *Contribution rates for AE participants tend to increase with tenure;
- *AE participants in plans that feature immediate vesting of employer contributions are more likely to choose their own investment portfolio than their respective counterparts; and
- AE participants in plans that feature automatic escalation are less likely to move away from their plan’s default investment portfolio than participants in plans without automatic increases.
What Plan Sponsors are Doing
At a recent program of The Plan Sponsor University (TPSU), held at the University of South Florida on February 16, 2017, many of the Program attendees were enthusiastic and vocal when conveying to the group, exactly how they achieve participation rates of over 90 %, with a drop-off-rate of only 3% after a couple of years.
Most notable was a Human Resources Director who makes personal, 1-on-1, visits with every company employee – over 600 employees, across multiple states – in the firm to look the employee/participant in the eye when explaining exactly what the company 401(k) plan can mean to the employee. He made it clear to the 35 professionals in attendance at the TPSU program, that he does not want there to be a single person in their company who does not fully understand the
benefits of having sufficient funds for retirement, when that time arrives. He has an engaged workforce – with over 90% participation and a 97 % retention-rate of all who enter the plan.
Lessons Learned at TPSU
Companies can generate results without waiting for the regulators (DOL or SEC) to step-in and establish a new set of Rules. Companies can put their employees in position to retire at normal retirement age. The structures, mechanisms and rules already exist.
For those employers or fiduciaries who are waiting for “the DOL New Fiduciary Rules” you have now been waiting for over 6 years – and the resolution appears to have been kicked-down-the road again by the new Administration. The time for action is now!
