PLANSPONSOR - April/May 2021 - 4

INDUSTRY ANALYSIS
Determining DC Saving Rates
D
ata from the 2020 PLANSPONSOR
Participant Survey suggest
that the driving force behind
saving in a defined contribution (DC)
plan is automatic enrollment.
This plan design feature is having a
greater impact on participant savings than
is any other variable, such as whether an
employer offers a match or the participant
receives advice, and that impact will likely
continue to grow as more plans adopt the
feature. Thirty-one percent of participants
who responded to the survey cited
above let themselves be defaulted into
their savings rate vs. 12% of respondents
to the 2018 survey.
Another positive note, corresponding
to the increase in auto-enrollment,
is that, according to the 2020
PLANSPONSOR Defined Contribution
Survey, the percentage of DC plans with a
default deferral rate over 3% had reached
52%-an all-time high. Moreover,
27% of plan sponsor respondents were
defaulting participants at a rate of 6%
or greater. Not surprisingly, higher
default deferral rates are also correlated
with higher average overall participant
deferral rates, especially when automatic
escalation is being employed.
A similar, but less dramatic, growth
scenario exists for matching contributions,
which is the second most dominant
factor influencing saving rates. Use of this
option moved from 25% in 2018 to 29% in
2019 and stayed there. Saving to the match
is the first step in participants' savings
hierarchy-ahead of getting out of debt,
for instance-according to many experts.
" You don't want to leave 'free money' on
the table " resonates with most people, and
that message is making inroads.
Younger people are far more apt to
accept defaults and less apt to save the
maximum allowed by law. Forty-three
percent of respondents under age 30
accepted the default, compared with 17%
of those 50 or older. Likewise, 5% of those
under 30 saved to the maximum IRS limit
vs. 25% of those over 50.
Women appear to be less trusting
of defaults-9% less of them save to the
default than do men-and slightly more
trusting of common/trusted sources than
are men. They are almost twice as likely to
choose their savings rate based on a targeted
amount or friends'/colleagues' recommendation,
or to accept auto-escalation.
What this suggests is that participants
behave in ways consistent with industry
expectations. Saving to the match and autoenrollment,
according to our Participant
Survey, are the factors that, together, are
sweeping up 71% of young employees and
almost 50% of older ones.
-Judy Faust Hartnett
Reasons Why Participants Arrived at Their Current Contribution/Savings Rate
Trends
Age
2020
Accepted the default/
recommended savings rate
Wanted to receive the maximum
employer contribution/match
Wanted to save maximum amount
allowable by law
Based their saving rate on a
targeted level of savings
Followed guidance provided by
partner/friend/colleague/adviser
Accepted automatic contributionrate
increases
Don't know / Unsure
31%
29%
17%
9%
5%
4%
6%
2019
28%
29%
15%
14%
5%
4%
6%
Source: 2018, 2019 and 2020 PLANSPONSOR Participant surveys
2018
12%
25%
15%
20%
11%
10%
6%
<30
43%
28%
5%
12%
8%
2%
3%
30 - 50
36%
27%
15%
8%
4%
4%
5%
>50
17%
31%
25%
11%
4%
3%
8%
Gender
Male
35%
32%
17%
7%
4%
2%
3%
Female
26%
25%
17%
12%
6%
6%
9%
4 PLANSPONSOR.COM April - May 2021
http://www.PLANSPONSOR.COM
PLANSPONSOR - April/May 2021

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