Are automated retirement plans really good for participants?
By Marlene Y. Satter
21 February 2013
Increasingly, employers use automated retirement plan features to boost employee participation. It’s effective. Before automatic enrollment, only 30 percent to 40 percent took part, but with it, that number soared to 90 percent to 95 percent. And everybody’s happy. Or are they?
“We can’t just look at [enrollment],” [Annamaria Lusardi, International Foundation of Employee Benefit Plans Professor at George Washington University] says. “The question is, what do they do afterwards? If they’re borrowing and don’t roll over retirement accounts if they change jobs, we’re not doing enough. Other people advocate [automated accounts] as simple and easy, but it’s not simple or easy, and sometimes it’s not a solution.”
Supovits concurs. People also need to learn how to deal with debt, budgeting, and overall financial wellness.
She sums it up this way: “Automatic features tend to lock in responsible money behaviors. We have proof that it improves participant outcomes.”
However, in a perfect world, she adds, managed accounts would consider the unique circumstances of every employee who couldn’t make independent investment choices. In the meantime, TDFs and automated choices at least ensure some progress.