Auto-enrollment
Auto-increase
Re-enrollment
Life happens...
During financially challenging times, some employees feel they have no choice but to reduce or stop contributing to their retirement account.
Re-enrollment
Help get employees to save more
Auto-increase can be a strategic complement to auto-enrollment by annually raising contribution rates, typically 1-2%, toward a set percentage.
Principal® suggests participants contribute at least 15% of salary, including employer match, to have enough for a successful retirement. 3
Auto-increase
Help get employees into the plan
Automatic (auto) enrollment is one of the simplest ways to help get employees to participate and start saving for retirement.
Auto-enrollment
Set strategic default contribution rates
Many employees remain at the default contribution rate because they don’t engage with the plan, or it’s interpreted as a recommendation from their employer.
Read more about automated plan features
Embracing 401(k) auto-enrollment with the budget in mind
How to make saving in a 401(k) hard to avoid
Boost 401(k) savings for non-desk employees
Consider putting the automated plan features trifecta together within the plan
The overarching goal of designing automated features within the plan is to help employees achieve successful income replacement in retirement. Industry standards suggest aiming to replace 70-85% of pre-retirement income.3
Principal has established these plan design best practices:
Auto-enrollment using a default contribution of 6% or higher.
Auto-increase of 1-2% annually up to a 15% cap
Annual re-enrollment to help under-saving or nonparticipating employees.
Consider applying these insights
Set a meaningful default contribution rate. Data shows that 93% of enrolled participants remain in the plan, even at higher default rates of 7% or more.
Data shows a strategic default rate is typically higher than most employers think. Overall, 93% of those enrolled remain in the plan even at the highest default contribution rate.
Participant behavior when auto-enrolled
95%
of employees remain in the plan when auto-enrolled.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Remain at default
Increase deferral
Decrease deferral
Opt out to zero
5%
2%
7%
86%
Auto-enroll behaviors at different default contribution intervals
Implement auto-increase with the right cap. Setting the cap at 15% helps get employees to a more realistic income replacement percentage in retirement.
Use automatic annual re-enrollment to bring eligible nonparticipating or under-contributing employees back into the plan.
Misconception
Employees will opt-out of the retirement plan when auto-enrolled.
reality
65% of employees say they expect to be auto-enrolled into the plan when starting a new job.2
Remain at
default
Increase
deferral
Decrease
deferral
Opt out
to zero
Default contribution rate intervals
7-10%
4-6%
1-3%
4%
10%
7%
10% decreased but remained in the plan.
80%
85%
6%
3%
6%
6% increased, showing openness to higher rates.
0%
20%
40%
60%
80%
100%
Participant behavior
88%
8%
1%
4%
Participant behavior when auto-increased
Default contribution rates used with auto-enrollment can create an anchoring effect
Auto-increase can help participants move off the default rate and towards the suggested percentage of 15%.
Auto-increase helps counter anchoring
Average employee contribution rates by auto-increase status
Plan default contribution rate intervals
1-3%
4.8%
2.7%
4-6%
7.2%
5.0%
7-10%
10.4%
8.2%
Without auto-increase
With auto-increase
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Remain at most recent increase
Elect to remain at last auto-increase
Increase above last auto-increase
Decrease below last auto-increase
Opt out to zero
1%
90%
4%
4%
2%
Remain at default rate
43%
58%
1% auto-increase up to 10%
68%
70%
1% auto-increase up to 15%
78%
83%
Retirement income replacement achieved
6%
3%
versus
Auto-enrolled default rate:
Total contributions (in future dollars without earnings)
Projected account balance (in future dollars)
Employee
Employer
$543K
$113K
$57K
$1.09M
$226K
$113K
$1.42M
$362K
$112K
$1.52M
$372K
$113K
$1.81M
$522K
$112K
$1.96M
$541K
$113K
Best practice plan design
For illustrative purposes only. 5
39%
Reduce their contribution rate
20%
Stop saving for retirement entirely
Help get employees back into the plan
Annual re-enrollment can put eligible nonparticipants into the plan—and those participating below the default contribution rate back up to the default rate. It helps address changing life circumstances, those who have stopped contributing but forgot to re-enroll, and those who think they’re participating but aren’t.
Percentage of those feeling unable to catch up after a setback in their savings journey
Reduce contribution rate
50%
57%
64%
Withdraw from retirement account
Stop contributing
Feeling unable to catch up was much higher among those who stopped contributing completely.
Default contribution rates used with auto-enrollment can create an anchoring effect
Auto-increase can help participants move off the default rate and towards the suggested percentage of 15%.
Help get employees back into the plan
Annual re-enrollment can put eligible nonparticipants into the plan—and those participating below the default contribution rate back up to the default rate. It helps address changing life circumstances, those who have stopped contributing but forgot to re-enroll, and those who think they’re participating but aren’t.