Auto enrollment doesn’t mean employers can set it and forget it

There is significant room for government agencies to help their workers save more for retirement, but that comes with caveats to consider.

More than three-fourths of government workers (77%) would use auto enrollment for supplemental plans if it were offered, according to a new study on supplemental retirement plans by the Center for State and Local Government Excellence, a group that helps retain talent in public service.

These plans are in addition to the usual retirement plans offered to government workers. Typically, the employer decides whether to offer them, but when they are used they can be a major benefit for workers, according to the center.

“We asked ourselves, “How can we underpin state a local employee retirement security in an environment where their main pension benefit is being reduced,’” Joshua Franzel, CEO of the Center for State and Local Government Excellence, said this week at the Retirement Trends for Public Employees event in New York City.

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“As more healthcare costs are [also] being shifted over to employees, supplemental defined contribution plans can play a key role in filling that gap that’s being left by pension reform and healthcare reform,” Franzel says. “Looking from a workforce management perspective and the role they play in not only helping recruit, retain and ultimately retire workers and sort of maintaining that workforce pipeline. Because if folks don’t have enough to retire on it’s going to be really hard to manage the workforce pipeline.”

The auto enroll feature, while a popular idea, isn’t necessarily the silver bullet solution to retirement planning, as there are thorny issues that employers should analyze first, such as decision fatigue and inertia, according to the study.

Indeed, these forces preventing many public sector employees — teachers, police officers, firefighters — from participating in SRPs, despite the long-term benefits.

Almost half of the state and local employees (47%) surveyed approve of auto-enrollment in defined contribution plans. However, there was still a healthy dose of individualism as 69% of respondents said they believe supplemental plans should be the choice of the employee and not dictated by the agency.

See also: HR’s solution for helping younger workers retire: Automatic enrollment

Another issue is employee behavior when auto-enrolled, especially when a default contribution rate is chosen for employees.

When one group of respondents was presented with a 7% default, they settled on a significantly higher rate than the group given the 1% default rate, the survey notes. Advisers and companies can take note of this as the responsibility of saving for retirement in the public sector continues to shift from employer to employee.

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