Retirement plan participation rates increase up to 70 percent when plans use key design features, new research from The Principal Financial Group shows.

Automatic enrollment, automatic annual increases, online deferral changes and employer contributions are features that increase employee participation rates in employer sponsored retirement plans.

Retirement plans with any combination of at least two of these features have an average total participant savings rate of 11 percent, which is more than double the average participant savings rate of 5.2 percent for plans without these features, according to The Principal.

The Principal examined the impact of plan design features on participation and savings rates of more than 25,000 retirement plans. The results are part of a customized plan sponsor Retirement Readiness Report designed to help employers understand how well participants are saving for retirement. 

“The true measure of retirement plan success is based on whether employees are saving enough to have adequate income in retirement,” said Jerry Patterson, senior vice president of retirement income strategy at The Principal.  “Our analysis shows most Americans need to save in general between 11 and 15 percent, including employer contributions, over an entire working career to replace 85 percent of income in retirement.”

To make the largest impact on savings, The Principal recommends: automatic enrollment for all employees at six percent deferral; automatic annual increases of at least one percent annually; online deferral changes available to participants; and employer contribution or match.

The customized Retirement Readiness Report shows employers how many employees are on track to replace a sufficient level of income in retirement. If employees are falling short, the report offers plan design changes that, based on the research from The Principal, have been shown to increase savings. 

“This report may be a wakeup call for some employers when they see how many of their employees are not adequately financially prepared for their retirement,” notes Patterson.  “It’s a better return on investment for the employer because, for often no additional cost, their employees become much better prepared for their retirement.”