For defined contribution plans to work, large U.S. retirement plan sponsors said they believe they should be mandatory, and include auto enrollment, savings escalation and employer contributions, according to a survey by Northern Trust.
The study, "The Path Forward: Designing the Ideal Defined Contribution Plan," surveyed 50 defined contribution plan sponsors, which represent more than 970,000 participants and more than $100 billion in plan assets, and five leading investment consultants. The interviews were conducted by Greenwich Associates in July and August.
The survey found that 63% of plan sponsors and four out of five consultants think participation in DC plans should not be optional.
Forty nine of the 50 plan sponsors and all of the investment consultants believe automatic enrollment should be a key feature of DC plan construction.
Currently Federal statistics show only 19% of private industry workers are enrolled in plans with automatic enrollment, a Northern Trust press release on Monday said.
Seventy-five percent of plan sponsors and all consultants support automatic escalation, which would build on the default level of between 3% and 7% for employee salary contributions to auto-enrollment plans.
Almost all plan sponsors and consultants report that the ideal DC plan structure would include significant contributions from employers, while 60% of plan sponsors believe employer contributions should vest immediately, instead of waiting until an employee works for one year or more at a company.
The majority of those surveyed also said they were in favor of government and employer policies, including tax incentives, restrictions on taking loans against plan balances and transparent fee structures, to strengthen plans.