By Jerry Geisel, Crain News Service
CHICAGO (July 2, 2013) — Aided by employer adoption of automatic enrollment features, employee participation in defined contribution plans — mainly 401(k) plans — is at an all-time high, according to a new survey.
In 2012, a record 78 percent of employees participated in their employers' defined contribution plans, up from 75 percent in 2011 and 68 percent in 2010, according to the Aon Hewitt survey of 141 defined contribution plans, which was released July 1.
Aon Hewitt researchers attribute the increase in employee participation to the impact of automatic enrollment.
On average, employees subject to automatic enrollment had a participation rate of 81.4 percent compared with a participation rate of 63.5 percent for employees not subject to automatic enrollment.
"The impact of automatic enrollment has been astounding," Patti Balthazor Bjork, Aon Hewitt's director of retirement research in Lincolnshire, Ill., said in a statement.
In all, 59 percent of employers offer an automatic enrollment feature in their defined contribution plans, up from just 34 percent in 2007.
While more employees are making plan contributions, employees' 2012 contribution rate remained flat—compared with 2011—at an average of 7.3 percent.
Ms. Bjork attributed that to employee inertia. "Once they are enrolled in the plan, inertia takes over for many employees and they make few adjustments to their DC plans," she said.
Employers, Aon Hewitt noted, can combat that inertia by coupling automatic enrollment with an automatic escalation feature in which employees' contributions automatically will increase each year by a certain percentage—typically one percentage point—until an employer-set ceiling is hit.
Aon Hewitt also found that employees' average account balance jumped 9.2 percent in 2012 to $81,240 from $74,380.
At $81,240, the average account balance is just off the record high of $82,310 set in 2006.
This report appeared on businessinsurance.com, the website of Business Insurance magazine, a Chicago-based sister publication of Tire Business.