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Impact of Plan Design on Participant Behavior


October 12, 2011

If you’ve read many of my articles, you know I’m a statistics junkie, which is probably why I enjoy baseball so much. I look forward to new studies from Vanguard and the Center for Retirement Research the way some people look forward to People magazine.

There’s a new study from the Principal Group, The Total View 2011, that you may find helpful in your practice. The report is a bit long, coming in just over 100 pages, but there’s a lot of great information.

Two statistics really jumped out at me. Both address the way plan design affects participant behavior.

Power of Match – We’ve all heard you can affect deferral rates by requiring employees to defer more in order to receive the full match, and here are the stats to back up that assertion. As the table below illustrates, restructuring the formula on a 2% matching contribution can create a positive change in participant contributions (see the orange column), with an average increase of more than 30%.

 Employer Match chart

Auto-enroll – This study reports that setting a higher default deferral rate can have a significant impact on the deferral rates for participants who opt to defer at a higher percentage – notice that the number of participants with a total savings rate over 11% nearly doubles when the plan’s default auto-enrollment rate moves from 3% to 6%.

Default Rate Impact chart
Default Rate Impact footnote

The report doesn’t indicate what the matching formula is under the two scenarios, so it’s possible a change in that formula partially accounts for the increase.

The full report is definitely worth reviewing in your ‘free time.’


Scott Swezy
VP, Smart401k

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