The Employee Benefit Research Institute (EBRI) says that a comparison of data from before and after companies adopted automatic enrollment features in their 401(k) plans show positive results.
EBRI compared actual auto enrollment and actual match rate information from before and after the feature was added, and found that large employer plans with an auto-enrollment feature have generally increased their matching contributions.
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Download NowEBRI's results contradict an earlier study by the Center for Retirement Research at Boston College and by the Urban Institute. That study concluded that match rates were lower among firms with automatic enrollment.
There are two problems with the methodology of the earlier study, EBRI says. First, the study was based on Form 5500 data, which does not include specific information on match rates. The authors instead estimated match rates based on the ratio of employer-to-employee contributions for each 401(k) plan.
The second problem EBRI identified is that the authors relied on a database of the top 1,000 pension funds which flagged those plans with an auto enrollment feature. However, no date of the implementation of the feature is noted, says EBRI.
Results of the comparisons indicate that employees with automatic enrollment plans are often better off then those without the feature. “Our recent analysis of plan-specific data shows that, at least among large 401(k) plans, plan sponsors actually increased the generosity of their contribution rates,” said Jack VanDerhei, EBRI research director and author of the analysis.
“The modifications to 401(k) plans made by sponsors in response to the Pension Protection Act of 2006 will be very important for retirement income adequacy in this country. Adding these more realistic assumptions to our simulation model will allow us to more accurately demonstrate the relative improvements in retirement accounts, especially for young and low-income workers.”
Full results of the study are available in the February 2010 EBRI Issue Brief at www.ebri.org.