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AARP Study: Auto 401(k)s Generate Positive Returns For Employers, Employees

Enhancing 401(k) programs with automatic features can generate a double-barreled investment success, enabling employees to save more for retirement and employers to better recruit and retain those employees. That key finding is in a new AARP-commissioned report, "Enhancing 401(k) Value and Participation: Taking the Automatic Approach," released today by AARP and prepared by global professional services firm Towers Perrin.

"Auto 401(k)s are a powerful, cost effective way for businesses to give their employees a savings boost," noted Jon Dauphiné, AARP's Director of Economic Security Strategy. "At the same time, these plans can provide the employer with an important recruitment and retention tool."

According to the report, competitive retirement benefits, including a 401(k) plan, are among the top 10 considerations for today's employees when choosing an employer, and are even more important for workers age 50 and older. 401(k) plan enhancements can lead to greater employee engagement, which in turn can produce sizable economic returns for a company.

The research suggests that employer contributions and enhancements to 401(k)s offer a larger, positive return on investment (ROI) that can sometimes exceed the ROI for spending on other key reward elements, such as pay and bonuses. This high ROI is likely due to employees' increasing focus on retirement savings and security in an era when responsibility is increasingly shifting away from the employer to the individual.

"People are concerned about having enough money to retire and value working for a company that provides cutting-edge retirement vehicles that work for them," explained Dauphiné. "Auto 401(k)s make it easy for busy workers to sign up and invest."

Towers Perrin interviewed twelve leading employers on a range of issues related to maximizing 40l(k) value. Eight of these organizations offered auto 401(k) and reported:

  • virtually all have seen their 401(k) participation rates increase measurably;
  • most have seen increases in their employees' 401(k) contribution levels, and
  • most report improvements in their ability to recruit and retain needed talent.

About half of the organizations interviewed said automatic plan features have improved their ability to pass the 401(k) nondiscrimination tests, which have a series of rules to ensure that a sufficient number of employees at all income levels are benefiting from 401(k) plans.

Some interviewees have seen decreased turnover, reductions in 40l(k) loan levels, and increases in average 40l(k) account balances. In fact, one employer noted that after introducing enhancements to its 40l(k) plan, including automatic enrollment, the voluntary turnover went from 18 percent to two percent.

"AARP has a vital interest in promoting retirement security for all Americans," Dauphiné concluded. "The automatic 401(k) is a simple way to increase savings, and ensuring Americans can prepare successfully for retirement is a critical component of AARP's Divided We Fail effort to improve lifetime financial security."

For more information or to view the report, visit

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