By Robert Steyer
401(k) plans using higher default rates retained more participants than those plans with lower default rates, according to new research by New York Life Retirement Plan Services.
Comparing plans using auto enrollment, New York Life found 10% of participants opted out of plans that had default rates of more than 3%. However, 14% of participants opted out in plans with default rates of 3% or less, according to a news release about the research. The analysis covered the 12 months ended March 31.
The research showed that plans auto-enrolling participants with a default rate greater than 3% had an average 95% participation rate while plans auto-enrolling participants with a lower default rate had an average 88% participation rate.
The more participants are engaged — with higher default rates or higher balances — the more they will be satisfied employees, David Castellani, senior managing director and CEO of New York Life Retirement Plan Services, said in an interview.
Mr. Castellani said auto enrollment among New York Life clients has been rising steadily since the passage of the Pension Protection Act of 2006, reaching 61% by March 31. The rate was only 21.3% at the end of 2006. Sixty-six percent of plans use a 3% default rate for auto enrollment, while 20% use default rates from 4% to 6%.
New York Life’s analysis is based on its review of records of 480 client plans with 800,000 participants.
Styer, R. (2012, June 3). Higher default rate equals higher participation, research finds. P&I DC Digest. Retrieved June 19, 2012, from http://www.pionline.com