Potential vs. Realized Savings Under Automatic Enrollment
Automatic enrollment helps boost retirement plan contributions, but its ultimate impact on plan balances is unclear.
While automatic enrollment in employer retirement plans has been shown to vastly increase plan participation, many employees tend to withdraw some or all of their account balances before retirement – offsetting automatic enrollment’s positive effect. This study gauges how automatic enrollment influenced savings plan loans and withdrawals at a Fortune 500 financial services firm and how pre-retirement withdrawals affected employees’ retirement plan balances over time.
The researchers studied retirement savings outcomes over time at an employer that began automatic enrollment at a 2% default contribution rate in 2005, comparing results for employees hired in the 12 months after automatic enrollment began to those for employees hired in the 12 months prior. They looked at savings plan participation, contributions, balances, outstanding loans, and whether withdrawals were rolled over into another qualified plan. They also projected automatic enrollment’s potential impact on savings absent pre-retirement withdrawals.