Commentary: Auto-enrollment, codified in law by the Pension Protection Act of 2006, was drafted with the best of intentions — to increase Americans’ retirement savings — but it has had the unintended consequence of impairing plan effectiveness. By proliferating small accounts in plans, auto-enrollment has caused a decrease in average account balances throughout the U.S. retirement system. Adding to the urgency of this issue is the rising rate of auto-enrollment adoption across defined contribution plans of all sizes, but particularly among larger plans.
According to Form 5500 data, DC plans with auto-enrollment, across all industries, have average account balances which are 7% lower than those without auto-enrollment. When we look at individual industries, the impact of auto-enrollment on average account balances is much more pronounced.
