Nearly six in 10 401(k) plans are automatically enrolling their workers into their plans, with 36% defaulting 6% or more of their workers’ salaries into the plans.
This 6% contribution rate is double what it was a decade ago, according to Vanguard Group’s 2024 How America Saves report. The use of automatic enrollment by 59% of plans is also up sharply from 36% in 2014. Furthermore, a full 77% of companies with 1,000 or more employees now automatically enroll their workers in their 401(k).
In addition, 60% of 401(k)s default workers at a 4% contribution rate, or higher, up from 39% 10 years ago.
For years, companies resisted defaulting workers at a rate higher than 3% for fear it would burden them. They also resisted contributions of 6% or higher, at the risk of seeming too paternalistic.
Indeed, only 33% of Vanguard’s 401(k) plans now auto enroll workers at a 3% contribution rate or less, down from 56% in 2017.
“Initially, many companies defaulted people into their 401(k) at 2% or 3% of pay, and that’s where many stayed,” Dave Stinnett, Vanguard’s head of strategic retirement consulting, tells The Wall Street Journal. “Now, companies are trying to get workers into the plan, saving as aggressively as possible.”
In fact, the report showed that even in the face of inflation, Americans continued to save a record 11.7% in their 401(k)s in 2023, on par with 2022.
This breaks down to average contributions of 7.4% by employees alone and employers kicking in an average match of 4.3%.
This record savings rate is primarily due to savers’ inertia, with nearly 70% of plans with automatic enrollment now pairing that with annual auto escalation of contributions by 1% or more each year, according to Vanguard.
A 2007 study by researchers at prominent universities, including Harvard, found that roughly the same number of workers automatically enrolled in a 401(k) at both 6% and 3% savings rates, opted out.
Verizon Communications is one company that began enrolling workers at a 6% contribution rate in 2022. Workers didn’t blink, says Kevin Cammarata, vice president of benefits. Verizon’s aim was to help its employees benefit from its generous 100% match of up to 6% of employee contributions, he says.
“It was good we got them into the plan, but they were not optimizing the match,” Cammarata says.
Today, 91% of the 68,000 participants in Verizon’s plan are saving 6% or more of their salaries in the 401(k), up from 78% in 2020.
Some companies are upping the ante even higher, with Boston Consulting Group enrolling new hires at 10% of pay since 2010.
Financial advisers recommend savers stash 12% to 15% of their salaries away to give themselves a fighting chance for a comfortable retirement.
