Automatic enrollment in 401(k) plans has grown by 50% since 2010 (Vanguard) and with good reason. Automatic enrollment (henceforth referred to as “AE”) reframes the savings decision and generally increases individual participation.

When individuals are automatically enrolled in the plan, the decision to decline can become more laborious than being enrolled. Without automatic enrollment it is possible that people defer participation due to perceived lack of understanding, forgetfulness, or procrastination. In the case of AE, doing nothing can actually become the positive choice.

Consider these statistics:

• Employees in plans with AE have an overall participation rate of 88%, compared with a participation rate of only 58% for employees hired under plans with voluntary enrollment (Vanguard). 
• Due to AE, the overall active participation rate for 401(k) plans is 69.3%, increasing from 64.7% 7 years ago (Fidelity). 
• In plans that offer AE, the average participation rate is 85.3% (Fidelity). 
• Approximately three-quarters of participants are in favor, or at least neutral towards, automatic enrollment (75%) and automatic contribution escalation (74%) (J.P. Morgan). 
• Among those automatically enrolled in their plans, less than 1% opted out, 96% were satisfied, and 31% said that they would not have enrolled otherwise (J.P. Morgan). 
• Among those whose contribution amounts were automatically increased by 1% to 2% each year, 97% were satisfied and 15% were unlikely to have escalated their contributions if not for this automatic feature (J.P. Morgan). 
• 96% of those automatically enrolled in their 401(k) plan are considered satisfied (J.P. Morgan). 

Though larger plans are generally more likely to implement automatic enrollment, there can be benefits for both the plan sponsor and the participant in any size company. Automatic enrollment can also help achieve increased participation by increasing the time a plan sponsor is able to spend on other aspects of the plan, such as employee education. Though adopting automatic enrollment can solve some barriers to the plan, it is helpful if it is partnered with financial education in order to produce knowledgeable participants. 

Sources:

Vanguard, How America Saves 2016, Vanguard 2015 Defined Contribution Plan data.

Fidelity Investments, A Building Futures Report: Q1 2016 Trends.

J.P. Morgan, Guiding Participants from Intent to Action, 2016 Defined Contribution Plan Participant Survey Findings.