April 16 T. Rowe Price Defined Contribution Plan Data As of December 31, 15 Insights The Pension Protection Act of 6 provided fiduciary cover for plans using automatic enrollment and escalation. Ten years have gone by, and the change to the 1(k) landscape has certainly been affected. AN EFFECTIVE WAY TO GET PARTICIPANTS STARTED Participants must enroll to make contributions to their retirement plan account. Auto-enrollment is an effective way to encourage participants to save participation in auto-enrolled plans is percentage points higher than in plans without that feature. Since smaller plans with assets under $5 million may be less likely to use auto-enrollment due to perceived costs, their participation rates are much lower. The value of auto-enrollment is clearly demonstrated when looking at participants under the age of 3. When auto-enrolled, participants in the under- years and - to 29-year year age groups participate at significantly higher percentages (76% and 84%, respectively) than those that are not auto-enrolled (3% and 3%, respectively). These participants often referred to as the millennial generation are eager to save. Results from our proprietary study on millennials told us that 74% are more comfortable saving and investing extra money than spending it. 1 Employers should take advantage of this positive savings perspective and explore the effect that auto-enrollment and auto-increase may have on their participants ability to save. HIGHER DEFAULT RATES AND AUTO-INCREASE MAXIMIZE SAVINGS POTENTIAL While enrollment rates are up sharply, most participants are not contributing enough to prepare for a comfortable retirement. Industry experts suggest saving 15% of your income for retirement. As a result, companies are rethinking the traditional 3% default rate in fact, 3.2% of companies adopted a 6% or higher default deferral rate by the end of 15. This represents a fundamental shift and acknowledgement that 3% default deferral rates will not provide enough savings for an adequate retirement. The industry can support this trend by encouraging sponsors to adopt higher default rates as emphasis swings from simply enrolling participants to actively encouraging a 15% savings rate. A consistent comment we receive when we survey clients is a desire for their participants to save more. Since many participants are reluctant to increase their deferral rate only 38% did in 15 sponsors should consider incorporating auto-increase into their plans. This feature automatically raises deferral rates in small increments each year to guide participants toward the suggested 15% rate something participants are more likely to tolerate. Results show that most participants will not opt out of this increase. Plan Sponsors should consider offering auto-increase as an opt-out feature since this produces a six-times-higher adoption rate than using opt in. 1 T. Rowe Price Millennial Retirement Saving and Spending Study, 15. POTENTIAL STRATEGIES Add auto-enrollment to get participants saving early Maximize participants savings potential through opt-out auto-increase up to 15% Want to learn more? Contact your T. Rowe Price representative. Visit troweprice.com/referencepoint 1
April 16 No. 1 AUTOMATIC ENROLLMENT DESIGN TRENDS Default auto-enrollment rate 11 12 13 14 15 1% 1.6% 1.8% 1.8% 2.% 2.4% 2% 7.3 6.3 6.3 6.3 5.3 3% 49.7 47.3 45.6 42.9 38.2 4% 13.7 14.2 15. 15. 13. 5% 1.8 11.7 1.8 1.1 1.9 6% or more 16.9 18.7.4 23.6 3.2 Auto-enrollment feature not offered.2 56.1 52.8 48.7 48.9 Default auto-increase rate 1% 63.5% 66.3% 69.% 69.6% 73.6% 2% 36.5 33.8 31. 3.4 26.4 Auto-increase feature not offered 36.7 36.5 32.2 3. 3.7 Default investment Target-date investment 95.5% 95.5% 95.5% 96.% 95.9% Other investment* 4.5 4.5 4.5 4. 4.1 * Other investments could include balanced, money market or stable value funds. Note: Results for auto-enrollment and auto-increase are based on those plans that offer that feature. No. 2 DEFAULT DEFERRAL RATE FOR AUTO-ENROLLMENT PLANS % 38.2% 3 29.% 1 13.% 1.9% 5.3% 2.4% 1% 2% 3% 4% 5% 6%.3%.9% 7% 8% DEFAULT AUTO-ENROLLMENT RATE 15 saw a positive trend toward more employers setting default deferral rate at 6% versus 3%. Visit troweprice.com/referencepoint 2
April 16 No. 3 PERCENTAGE OF PLANS ADOPTING AUTO-INCREASE AND AUTO-ENROLLMENT 8% 67.8% 7.% 69.3% 63.3% 63.5% 51.3% 51.1% 43.9% 47.2% 39.8% 11 12 13 14 15 Auto-Increase Auto-Enrollment The percentage of eligible plans using auto-increase and auto-enrollment remained steady in 15 at 69.3% and 51.1%, respectively. No. 4 8% PARTICIPANT ADOPTION RATE BASED ON AUTO-INCREASE ADOPTION METHOD 69% 66% 65% 1% 11% 11% 13 14 15 Opt-Out, Adoption Method Used Opt-In, Adoption Method Used We continue to see significantly higher use of autoincrease by participants when they are asked to opt out, a 54-percentage-point improvement in use. Visit troweprice.com/referencepoint 3
April 16 No. 5 PARTICIPATION RATES 8% 7.2% 73.2% 66.1% 73.5% 68.1% 72.9% 68.3% 72.6% 66.2% 74.5% 68.% 75.8% 69.5% 76.% 69.9% 74.% 66.5%.9% 7 8 9 1 11 12 13 14 15 Plan Weighted Participant Weighted No. 6 1% PARTICIPATION COMPARISON BETWEEN AUTO-ENROLLMENT AND NON-AUTO-ENROLLMENT PLANS 87% 86% 88% 8 52% 49% 48% 13 14 15 Auto-Enrollment Plans Non-Auto-Enrollment Plans Participation rates continue to be strongly tied to the adoption of auto-enrollment; auto-enrollment plans saw a full points higher participation rate than non-autoenrollment plans. Visit troweprice.com/referencepoint 4
April 16 No. 7 PARTICIPATION RATE COMPARISON BY AGE AUTO-ENROLLMENT PLANS VS. NON-AUTO-ENROLLMENT PLANS 1% 88.5% 89.5% 9.2% 89.1% 87.8% 84.4% 85.7% 8 75.7% 74.6% 51.4% 55.% 56.7% 54.3% 46.3% 47.6% 3.4% 3.1% 3.1% < 29 3 39 49 5 59 64 65 69 7+ 15 TRP Total Auto-Enrollment Plans Rate Non-Auto-Enrollment Plans Rate Age groups in their prime working years (ages 3 to ) who are in auto-enrolled plans are showing a greater than 3-percentage-points increase in the participation rate compared with the same age groups in non-auto-enrolled plans. Visit troweprice.com/referencepoint 5
April 16 No. 8 TOTAL PARTICIPATION RATE (AUTO-ENROLLMENT AND NON-AUTO-ENROLLMENT PLANS) BY AGE < 29 3 39 49 5 59 64 65 69 7+ 15 TRP Total 36.7% 31.6 31.8 54.4 54. 56.6 7.8 7.6 7. 73.9 73.3 71.8 75.4 74.9 72.7 74. 73.9 7. 68.8 68.5 62.3 53.5 53.6 45.2 68.3 67.8 66.9 1 3 5 7 8% 13 Overall participation rates dropped in 15 to 66.9%, 14 possibly due to concerns over contributing money in 15 an unstable market environment. Visit troweprice.com/referencepoint 6
April 16 No. 9 1% PARTICIPATION RATES BREAKDOWN BY PLAN ASSETS 8 73.1% 79.7% 83.% 69.8% 79.7% 68.8% 59.8%.3% 43.9% 44.9% <$5M $5M $5M $5M $M $M $1B $1B+ Plan Weighted Participant Weighted No. 1 PARTICIPATION RATES BREAKDOWN BY PLAN PARTICIPANT COUNT 8% 78.4% 71.4% 66.2% 65.8% 77.6% 66.8% <1K 1K 5K >5K Plan Weighted Participant Weighted Visit troweprice.com/referencepoint 7
April 16 Methodology Unless otherwise noted, all data included in this report are drawn from the following sources: Data are based on the large-market, full-service universe TRP Total of T. Rowe Price Retirement Plan Services, Inc., retirement plans (1(k) and 457 plans), consisting of 662 plans and over 1.6 million participants. Auto-enrollment, auto-increase and default deferral rate results are based on participants of large-market, full-service 1(k) and 457 plans who were automatically enrolled in their plan during 15. Trend results are based on findings at the calendar year-end from 7 15. Participation rates by age are participant weighted (total number of participants divided by the total number eligible to participate). Participant-weighted year-over-year participation rate averages are calculated by dividing the number of participants by the number eligible to participate. The plan-weighted year-over-year participation rate average is the sum of plan level averages divided by the number of plans. The data are based on any participants eligible to make contributions during the period. Participation results are based on all contributions. Participation rates by age are participant weighted (total number of participants divided by the total number eligible to participate). Visit troweprice.com/referencepoint 8 C1BINN44Z 16-AX-17643