Given the large gap between retirement needs and retirement resources, our retirement programs need to work as well as possible. In the private sector, 401(k) plans, the main vehicle for retirement saving, are not working as well as they could. This problem could be remedied with more extensive use of automatic provisions – automatic enrollment and automatic escalation in the default contribution rates. The Pension Protection Act of 2006 encouraged both these provisions through a safe harbor, but progress has been slow.
The question is how slow. Different data sources provide very different pictures about the extent to which automatic provisions have taken hold. The most optimistic assessment comes from sources covering particular plans. The Plan Sponsor Council of America (PSCA), an industry group that conducts an annual survey with about 600 responses, reports that about half of plans have auto-enrollment. Since auto-enrollment is much more prevalent among large plans, the percent of participants covered by such a provision is certainly greater than 50 percent. Vanguard, which tends to have a disproportionate number of large plans, reports a significantly lower percent of plans with auto enrollment – 34 percent. However, these plans cover 58 percent of participants. Shifting from selected plans to a nationally representative sample or census of plans sharply reduces the percent with automatic enrollment. The National Compensation Survey estimates 19 percent of plans and the Department of Labor’s Form 5500 shows only 18 percent of plans have auto enrollment.
