More employers are offering auto-enrollment 401k plans to encourage saving

Dive Brief:

U.S. employers are upgrading their defined contribution (DC) plans, most of which are 401ks, according to a Willis Towers Watson (WTW) survey. WTW found that more employers are adding automatic enrollment and Roth plan features to their 401(k) plans, increasing their contributions, reducing the number of investment choices and being more transparent about record-keeping fees.
Although 73% of employers in the survey offer auto-enrollment in DC plans, nearly half (47%) found the enhancement too costly. Most employers surveyed (nearly 70%) added Roth features to their 401k plans, up from 54% in 2014 and 46% in 2012. Of the 25% of employers who increased their matching contribution during the past five years, 51% did so to encourage employees' savings and engagement, and 44% increased their contribution to offset DC plan changes.
Other key results in the survey show that 80% of employers added health savings accounts (HSAs), popular for their tax-free contributions and investment earnings, to DC plans, and 12% plan to add HSAs by next year. Also, more employers (78%) want to improve their efforts to educate employees about retirement plans, with 64% planning to offer guidance on how to draw down balances after employees retire.

Dive Insight:

Studies have long suggested that many U.S. workers haven't saved enough for their post-employment years, especially those nearing retirement. The WTW survey indicates that employers are trying to help reverse this trend. But employers will need to collect data on the enhancements to find out if their efforts are, in fact, increasing employee enrollment, contributions and engagement as intended.

Employment experts have advocated for the automatic enrollment of employees in DC plans, which would allow them to opt out, if they choose. The idea is that once employees are enrolled, they're less likely to forget to enroll entirely. But auto-enrollment is an area that needs more analyses; providing the service is still costly for employers, as the WTW survey shoes, and the American Economic Association found that auto-enrollment doesn't stop employees from creating debts with their personal funds.

Some employers have said they'll use their tax bill savings to increase their 401k contributions. Data-gathering will soon tell whether this tactic is effective.

Employees don't always know as much about their benefits as they think, a problem employers can help fix through education. Millennials reportedly look to employers to educate them about DC plans more so than baby boomers. Employers will need to improve the way they communicate retirement plans, which includes how plans work, what investing entails and the importance of saving versus spending their account funds.