Automatic enrollment of workers into retirement plans is changing how Americans save for their post-working years. Enrolling new employees automatically increases plan participation dramatically by eliminating the need for action by the worker. Plans that auto-enroll have participation rates that exceed 90 percent—depending on plan features, industry, and employee demographics—compared with rates in the 50 percent range for plans in which workers must opt in.
However, as Americans struggle to save for retirement, they face a range of barriers and competing priorities, beyond the inertia and paperwork that auto-enrollment is designed to address, according to research by The Pew Charitable Trusts. Further analysis of related questions from Pew’s 2017 survey of workers at small to midsize businesses indicates that automatic enrollment can be a powerful tool for increasing retirement savings.
Survey respondents without a retirement plan at work were asked whether they would sign up if an employer-sponsored plan were offered. Separately, they were asked if they would opt out of a plan if automatically enrolled. (See Table 1.) The cross-tabulation of these two responses sheds light on how auto-enrollment can drive participation.
Of those who said they definitely or probably would not sign up for an employer-sponsored plan on their own, 55 percent said they would stay if automatically enrolled. Not surprisingly, a large majority (85 percent) of those who said they would sign up for a plan if offered also said they would stay in if automatically enrolled.
But that means 15 percent of those who said they would make the effort to sign up for a plan if offered also said they would choose not to participate if automatically enrolled. The seeming discrepancy may indicate some resistance specific to automatic enrollment, reflect confusion about the concept in general, or be an artifact of question wording.
To examine what motivates workers to participate, those who had a plan at work but were not participating were asked what would encourage them to join. They also were asked if they would opt out of an employer-sponsored plan if automatically enrolled. (See Table 2.) Again, a cross-tabulation of these two questions shows that automatic enrollment could boost participation significantly, regardless of the perceived obstacle to joining the plan.
Large majorities said they would not opt out if automatically enrolled, illustrating the power of automatic enrollment—regardless of the change they identified as most likely to motivate them to contribute to a plan. In fact, there was no statistically significant difference among those who said they would remain enrolled, no matter the motivator, implying that automatic enrollment is a cost-effective approach to increasing participation regardless of the pressures workers faced or inducements from which they thought they would benefit.
Finally, those respondents without a plan at work were asked about the most important barriers they faced in saving for retirement—aside from having no way to save on the job. (See Table 3.) They were also asked if they would participate in a hypothetical state-sponsored automatic IRA program. Similar to “529” college savings plans, these are state sponsored but privately managed programs in which eligible workers are automatically enrolled in an individual retirement account, although they can opt out. The accounts are held in the investor’s name, and the state never holds the funds.
More workers who say they are unwilling to sacrifice quality of life would opt out compared with those who are saving for education, although significant majorities of each would, if enrolled automatically, remain in the program regardless of the perceived obstacles to retirement saving.
The survey analysis demonstrates that employers and policymakers can encourage workers to save by using automatic enrollment. Survey respondents repeatedly indicated that regardless of whether they have access to an employer-sponsored plan, their perceived motivators and barriers, or the plan sponsor, they would remain in a retirement plan or program and begin saving for their future if automatically enrolled.
John Scott is the director and Andrew Blevins is a principal associate with The Pew Charitable Trusts’ retirement savings project.