Auto Increase

One of the criticisms of Auto Enrollment plans has been that they cause lower savings rates for some inert employees who maintain their savings rate at the oftentimes too low automatic default rate.

This problem is easily overcome by adding Auto Increase to your plan design, which automatically increases deferral rates periodically in the future.

As powerful as present bias and inertia can be in preventing plan participants from increasing their saving, they can be equally effective at enhancing saving, when the choice architecture is reformulated. Auto Increase allows plan participants to commit to begin to increase their savings rate at some time in the future, thus avoiding present bias. With that one action, everything else follows automatically: employees’ savings rates will be automatically raised by a specified amount at the same time every year, up to a preset cap, thus making good use of inertia.

However, Auto Increase alone only solves one of the three behavior gaps preventing employees from securing their retirement.  In order for it to be as effective as possible, it needs to be paired with Auto Enrollment and Auto Invest.

 


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