Auto features in 401(k) plans boost retirement preparedness

Automatic plan features can boost retirement preparedness for workers contributing to a 401(k) plan, according to Putnam’s latest Lifetime Income Score survey.

The score, introduced by Putnam with Brightwork Partners in 2011, accounts for several variables to help participants estimate the income level they are currently on track to replace in retirement. The number represents the percentage of pre-retirement income the household was likely to replace and includes projections for Social Security.

The study of more than 4,000 working adults found the median Lifetime Income Score for households who were automatically enrolled was 91, compared with 73 for those who opted into their workplace plan.

The difference in preparedness was not tied to income level or amount of investable assets, the data found. Deferral rates, however, did vary — with the average rate for auto-enrolled workers modestly higher at 9%, than the 8% for those who opted in.

Households who were auto-enrolled also were more confident about their progress toward saving for the future and their ability to meet their expenses in retirement.

Auto-escalation also supports preparedness
Households in automatic escalation had higher investable assets and a median score of 95 — and deferred at a slightly higher average rate of 10% — compared with those without this feature, who had a median score of 74 and an average rate of 8%.

Auto-enrollment and other automatic plan features can have a measurable impact on retirement security for many savers. The significant difference in scores, which in general was unaffected by income level, may be signaling behavioral factors that have been aided by plan design.

The survey demonstrated that, overall, automatic features had a substantially positive effect on LIS scores. Further, both auto-enrollment and auto-escalation led to an improved level of confidence among households about being prepared for retirement.