Higher Deferral Rates in 401k Auto Enrollment Create Engaged Participants, According to New York Life Retirement Plan Services Analysis

WESTWOOD, Mass., June 12, 2012 /PRNewswire/ -- In a recent study[i] of its retirement clients, New York Life Retirement Plan Services (New York Life), a leading provider of retirement solutions to U.S. corporations and unions, found higher default deferral rates in 401(k) plans with auto enrollment lead to higher participant retention with a consistent propensity for increased deferral rates, and proactive asset allocation selection. 

Countering the auto enrollment myth that higher auto deferral rates result in participants opting out of plans in larger numbers, the New York Life analysis indicates that plans auto enrolling their participants at higher deferral rates have lower participant opt-out rates. Indeed, plans implementing auto enrollment with a default deferral rate of greater than 3% have consistently experienced lower opt out rates than plans with lower default rates, year-over-year. Plans with less than 4% default rates experienced 14% opt-out rates, vs. 10% for plans with greater than 3% default deferrals for the 12-month period ending March 31, 2012.

The study also shows plans that auto enroll participants at a rate greater than 3% of salary have a 95% overall participation rate -- superior to plans auto enrolling participants with less than a 3% deferral rate, which have 88% participation on average.

According to the New York Life study, 30% of participants in plans with default deferral rates higher than 3% proactively increased their deferral rate within a year of being auto enrolled.  The percentage of participants proactively increasing their deferral rate after being auto enrolled at higher than 3% has steadily increased since 2006, where only 13% of the population had done so.  By comparison, participants enrolled at lower rates have garnered a strong but flat rate of participant engagement, ranging from 27% to 26% over the same time period.

"Participant engagement is one of the toughest nuts to crack and we need to attack it on several fronts.  It isn't about the most clever postcard, or best app – it is about understanding human behavior and capitalizing on it," said David Castellani, CEO of New York Life Retirement Plan Services. "Success begets success. If participants are saving and accumulating assets faster, they are going to realize the value of their plan faster. We encourage our sponsors not only to auto enroll, but to push the auto enrollment envelope as far as they can."

The analysis involved 480 plans and 800,000 participants across New York Life's retirement platform. Auto enrollment in 401k plans was encouraged in the Pension Protection Act of 2006. The number of plans on the New York Life platform that have adopted auto enrollment climbed to 61% as of March 31, 2012, compared with 21% in 2006.

About New York Life Retirement Plan Services

New York Life Retirement Plan Services offers bundled retirement plan solutions and defined contribution investment only products throughout the United States. New York Life Retirement Plan Services, a division of New York Life Investment Management LLC, administers more than $37 billion in bundled retirement plans as of March 31, 2012. With offices in Westwood, Massachusetts, Parsippany, New Jersey, and San Francisco, New York Life Retirement Plan Services is widely recognized for its leadership within the retirement plan industry.

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[i] Study includes information as of March 31, 2012.

SOURCE New York Life Retirement Plan Services