4 August 2020

Auto Feature Boost DC Participants’ Income Replacement Level

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Auto features improve defined contribution plan participants' income replacement percentages, said a survey by Empower Retirement.

The median income replacement ratio is 95% for participants who are auto-enrolled in 401(k), 403(b) or 457 plans, said a report about the survey of 4,038 working adults nationwide. For participants who opted into their DC plans, the median replacement ratio was 84%.

Empower defines the income replacement ratio — the company calls it a "retirement progress score" — as the estimate of current income that a person might need to replace from savings in order to cover retirement expenses.

"The difference may reflect an important benefit of auto enrollment," said the report, which was issued Wednesday. "Many participants begin saving earlier in their tenure, because enrollment begins as soon as they are eligible."

The survey also compared responses of people who participate in plans with auto escalation vs. those whose plans lack this feature. The median income replacement was 107% for the former vs. 80% for the latter.

The survey also found a dramatic difference in median income replacement levels for people contributing 10% or more of annual pay to a retirement plan vs. those contributing less than 3%. The median income replacement was 128% for the former and 59% for the latter. These responses exclude corporate matches.

The online survey, done in conjunction with NMG Consulting, was conducted from mid-December to mid-January among workers aged 18 to 65.

Click here for the original article from Pensions and Invesments.

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