Employee participation in company DC plans in the United States is at an all-time high, and plan balances have reached pre-recession levels, according to a report.
Aon Hewitt’s analysis of more than 140 DC plans representing 3.5 million eligible employees found that participation rates reached 78% in 2012. That’s up from 75% in 2011 and 68% in 2002—the first year the organization began tracking the data.
As the markets have rebounded, average DC plan balances have reached their highest levels since 2006. The average total plan balance in 2012 was US$81,240, up significantly from $57,150 in 2008.
“It is encouraging to see more people participating in DC plans—the impact of automatic enrollment has been astounding,” says Patti Balthazor Bjork, the company’s director of retirement research.
Today, 59% of employers automatically enrol employees in their company DC plan, compared with just 34% in 2007. On average, participants subject to auto-enrollment had a participation rate of 81%, nearly 20 percentage points higher than those not subject to auto-enrollment.
In addition, the study shows that employees continue to save at rates insufficient to support adequate long-term savings goals.
The average before-tax contribution rate remained flat from 2011 at 7.3% of pay. Most concerning, however, is that workers are not saving enough to take advantage of company-matching dollars.
Nearly 28% of employees contributed below the company match threshold, potentially sacrificing tens of thousands of dollars in retirement savings over the course of a person’s career.
“Once they are enrolled in the plan, inertia takes over for many employees, and they make few adjustments to their DC plans,” says Bjork. “Employers can help by coupling automatic enrollment with other features, like contribution escalation, that enable employees to increase their savings rate over time.”
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