Survey Highlights Need for Auto-Enrollment in Public Sector Supplemental Retirement Plans

As defined benefit plans shrink, supplemental plans are growing – but full participation may be hard to achieve without automatic enrollment.

As pressure on defined benefit pension plans mounts, many states have started to offer supplemental retirement plans to help public sector employees save for retirement. However, few of those plans have automatic enrollment, meaning participation rates are often low. A survey released today from the Center for State and Local Government Excellence and ICMA-RA shows that a significant portion of public employees would support auto-enrollment in supplemental plans, and a majority of them (77%) would stay in the plans once auto-enrolled.

The groups surveyed 400 state and local employees about their retirement choices. The results show that a shift is underway within public employee pension and retirement plans toward solutions that are widely available in the private sector, like auto-enrollment in supplemental plans. “What we saw when the South Dakota Retirement System shifted to auto-enrollment was that participation in the plan went up by 90%. That’s a really significant increase,” said Joshua Franzel, president and CEO of the Center for State and Local Government Excellence during a presentation of the findings to reporters.

Getting to a point where public employees are auto-enrolled everywhere may take some work, however. While a majority of respondents said that auto-enrollment would help them save more for retirement, 69% said they thought supplemental plans should be the workers’ choice and not that of the employers. Part of the disconnect may be the growing debt load that many people carry. Eighty-four percent of respondents said they carried some type of consumer debt and 67% said their debt or savings goals like buying a car or a house have prevented them from saving more for retirement. This problem is especially acute for low-wage employees. Still, keeping supplemental plans opt-in is risky. For employees that are new hires and potentially ineligible for a defined benefit plan, choosing to opt-out of a supplemental plan could mean forgoing retirement savings altogether.

This tension comes as no surprise to Sandy Matheson, executive director of Maine Public Employees Retirement System. In the 1980s, Maine’s public pensions were significantly underfunded and the state ratified changes to the state constitution to require yearly contributions and catch-up payments. As a result, the state was able to significantly improve the funded status of its public pensions and keep them going. But, she says, going forward, pension systems will have to rethink plan structure and benefits. “It’s all about how you allocate risk,” Matheson said during a presentation on the findings. “Our goal was to manage the plans and share the risk with our employees where we had to, but in such a way that they weren’t harmed. Other states are learning from what we did.”


Source: Center for State and Local Government Excellence and ICMA-RA

Auto enrollment in supplemental plans, then, is just one part of a bigger picture. Michael Guarasci, chief financial officer at ICMA-RA, adds the findings highlight the fact that plan sponsors need to work to provide more resources to participants. “We think there needs to be more transparency and a greater understanding of what’s available to participants,” he said. “We also have to improve the products that are available so that participants can manage their retirement effectively.”

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