Employee participation in company defined contribution (DC) plans in the United States is at an all-time high and DC plan balances have reached pre-recession levels, according to a survey by Aon Hewitt.
Aon Hewitt's analysis of more than 140 defined contribution plans representing 3.5 million eligible employees found that participation rates in DC plans have reached their highest levels since Aon Hewitt began tracking this data in 2002. On average, 78 per cent of employees participated in a DC plan in 2012, up from 75 per cent in 2011, and 68 per cent in 2002.
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 US$57,150 in 2008, said Aon Hewitt.
"It is encouraging to see more people participating in DC plans — the impact of automatic enrolment has been astounding," said Patti Balthazor Bjork, director of retirement research at Aon Hewitt. "Companies are definitely moving in the right direction when it comes to encouraging financial wellness among their workers, but there is certainly opportunity to do more."
The rise in participation rates is largely driven by an increase in the number of employers that automatically enrol employees in their DC plans. Today, 59 per cent of employers in the U.S. automatically enrol employees in their company DC plan, compared to just 34 per cent in 2007. On average, participants subject to automatic enrolment had a participation rate of 81 per cent, nearly 20 percentage points higher than those without automatic enrolment, found the report.
In addition, Aon Hewitt's study shows 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 per cent of pay. Most concerning, workers are not saving enough to take advantage of company matching dollars. Nearly 28 per cent 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," said Bjork. "Employers can help by coupling automatic enrollment with other features, like contribution escalation, that enable employees to increase their savings rate over time. Combined, these can make a big impact on employees' long-term financial outlook."
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