401(k) Contributions Increasing

American workers on average invested 6.8% of salaries in 401(k) or profit-sharing plans in 2015, up from 6.2% in 2014, according to the Plan Sponsor Council of America (PSCA). “An increase in retirement savings of 0.6 percentage points might not sound like much, but it represents a 10% rise in the amount flowing into those plans over just five years, or billions of dollars. About $7 trillion is already invested in 401(k) and other defined contribution plans, according to the Investment Company Institute,” Bloomberg News reported. While workers are saving more, companies have held their financial contributions steady. Employers contributed 4.7% of payroll in 2015, the same as in the prior two years. Automatic enrollment is likely a big factor in the increased investment. Almost 58% of plans surveyed make their sign-up process automatic, requiring employees to take action only if they do not want to participate. In plans where employees need to opt-out, 89% of workers contribute to 401(k)s, while 75% make contributions under plans without auto-enrollment. Auto-enrolled employees also save more on average, saving 7.2% of their salaries versus 6.3% for those who were not auto-enrolled. The PSCA found that less than a quarter of plans auto-escalate all participants, and 16% of plans boost contributions only for workers who are deemed to be not saving enough.