Lead the change! Help employers and their participants overcome objection to automatic features.

Change is hard.  Some use that phrase as an explanation.  Some use it as an excuse. I would challenge you to use it as motivation.

As creatures of habit, not all of us embrace change with open arms (me included).  It’s as if we automatically presume change is bad or negative. Change can be viewed as negative when we don’t want it, don’t understand it, or when we didn’t initiate it.

But change doesn’t have to be negative. Change can be positive!  Like a new six-lane interstate that improves your commute.  DVRs instead of VCRs to record The Bachelorette. Keyless entry. Cupcakeries; because who doesn’t love cupcakes?   And even retirement readiness plan features (because we all want to retire one day). Change can lead to better outcomes!

When it comes to implementing retirement ready plan design features, both plan participants and employers can be resistant to change using excuses such as:

“Employees can’t afford to save or have simply chosen not to save.”


“Design changes mean greater expense and time commitment to a plan sponsor.”

We can address these objections as we tell our retirement readiness story.

If an employee can’t afford to save when they’re receiving a paycheck, how will they make ends meet when they aren’t receiving one?  Procrastinating makes it harder to save for an adequate retirement because there will be less time for savings to grow (compounding earnings takes time).  An annual automatic escalation feature (even a 1% annual increase) can help increase savings with a gradual impact on a participant’s pay.

We’ve found that only about 9% of employees opt out of automatic enrollment.1 Eighty-eight percent of employees whose deferral rates are automatically escalated do not opt-out of the increase.2 Change can be embraced!

There are ways to structure an employer matching contribution, such as stretching the match formula, so that it fits an employer’s budget and still encourages participants to save for retirement. Plan sponsors should also take into consideration the potential cost associated with employing an older workforce that isn’t retirement ready so must continue working past retirement age. 

The Principal Financial Group® helps implement retirement ready designs, including annual notifications that are required, making change easy!  With 47% of retirement plans providing automatic enrollment (including 42.4% using automatic enrollment for new hires, and 39.8% automatically increasing deferral rates over time)3, it’s evident that improved design changes are happening as more employers become educated on retirement readiness. This is a key change as plan sponsors strive for better retirement outcomes!

So why does objection remain? Why isn’t everyone on-board yet with retirement readiness?  Everyone should know by now that it’s awesome, right?  Well, change takes time.  When we’re resistant to change, we’re also more likely to procrastinate. Let’s change that.  Now is the time to take action, as future retirement savings could depend on it.

Retirement readiness can help bring positive change to the future of retirement plans.  That can result in employers having retirement plans with greater benefit adequacy and more participants retiring with adequate retirement savings. That may just leave some change in your pocket.

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FINE PRINT: Blog was tested and approved -with minimal changes- by four cats and one Labrador.  Blog author not responsible for random singing of Sheryl Crow’s   “A Change Will Do You Good,”  the Brady Bunch’s “Time to Change,” or David Bowie’s Cha-Cha-Cha “Changes.”
1 The Principal data based on 3,324 plans with automatic enrollment, March 31, 2013 (PQ11441E-01)
2 The Principal data based on a sample of 20,457 participants opted out vs. 141,297 participants who remained in the automatic escalation feature, March 31, 2013
3 PSCA’s Annual Survey of Profit Sharing and 401(k) plans, reflecting 2012 plan experience; Oct. 2013
The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice.  You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.
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