Could Auto-Enrollment Be a Boost for Government DC Plan Participants?

The median account balance in government defined contribution (DC) plans was $644,994,965 as of December 31, 2018, according to the National Association of Government Defined Contribution Administrators’ (NAGDCA)’s 2019 Benchmarking Report.

The median account balance per participant for 2018 was $18,001.00. Not surprisingly, the older the participant, the larger the typical account balance. Older plan participants were also contributing more than their younger counterparts in terms of dollar per paycheck deferrals.

The participation rate for state-sponsored DC plans was 49%, while for non-state plans it was 68%.

One possible reason for low participation and low account balances is that 93% of the responding plans had participants that were eligible to participate in defined benefit (DB) plans. Another possible explanation for the low participation rate compared to that of private-sector DC plans is the lack of ability to offer automatic enrollment.

According to the report, only 23% of the responding plans reported using automatic enrollment, while one in 10 used automatic escalation from which a participant must opt-out. This is nearly the same as the number of plans that reported using auto-enrollment in NAGDCA’s inaugural benchmarking report in 2016.

NAGDCA has been an advocate for states allowing government DC plans to use auto-enrollment. “Excuses for not beginning a savings program can be made at every phase in life—student debt, getting married, buying a house, having kids, paying for college, etc.—before you know it you are out of time. With so much burden of responsibility being placed on the individual today, it is imperative to change the system to better serve those that serve the public, by working to make auto-enrollment and auto-escalation programs available to all public sector employees,” NAGDCA said in a previous report.

According to the Association’s website, currently 10 states allow automatic enrollment for all public-sector plans. Sixteen allow auto-enrollment for some public-sector plans, and 24 states prevent auto-enrollment.

Aside from the lack of use of auto-enrollment and auto-escalation, the current benchmarking survey found some similarities between government DC plans and their private-sector counterparts. For example, the most common default investment option for employees was a pre-packaged target-date fund (TDF), with 49% of the respondents reporting this option, followed by a custom TDF, at 28%.

Employee pre-tax contributions comprised over three-quarters of total account balances, and six out of 10 plans offer managed account services.

Among survey respondents, 62% offer a 457(b) plan, 22% offer a 401(a) DC plan, 9% offer a 401(k) plan and 7% offer a 403(b) plan. A variety of covered entities were represented in the survey. A copy of the report may be accessed or purchased here.