401(k) Annual Savings Rate Increases Help Millenials

Apr 29 2014, 1:50pm CDT | by

If you’re not saving to the max in your 401(k), there’s an easy way to get there: sign up for an annual increase program. “For those who are in it, it’s working,” says Jeanne Thompson, a vice president at Fidelity Investments who tracks 401(k) trends. “Even though the percentage of employees who use it is small, it’s actually driving a large percentage of savings increases.”

Over the last 12 months, one in five employees increased their 401(k) personal savings rate–the highest percentage since Fidelity started tracking the number seven years ago. And nearly 2 in 5 savings rate increases were done via an annual increase program (also known as auto escalation). For Millenials, there was an even bigger impact: More than half of savings rate increases were done via an annual increase program.

It’s likely your 401(k) plan has this feature. Three-quarters of Fidelity-administered 401(k) plans offer annual increase programs. It works two ways—employer driven or employee driven. In the employer driven model (12% of plans) the employer automatically enrolls everyone in the annual increase program. (Only 7% of employees enrolled by their employer opt out.) In the employee driven model, the employer offers an annual increase program, but it’s up to the employee to go online or call to sign up.

When you sign up, the amount you contribute in salary deferrals to your 401(k) plan goes up by 1 percentage point a year. So if you’re saving 4% of your salary this year, next year your savings rate is bumped up to 5%, and so on until you get to 10% or 15%. You can set the cap, and if your employer sets a cap, you can modify it. The contribution limit for 2014 is $17,500, or $23,000 if you’re 50 or older.

If you’re deferring at 3% and your employer offers this program, you should sign up for it, Thompson says, adding that a 3% savings rate isn’t going to be enough to supplement your retirement, even if your employer contributes to your 401(k) by matching your savings. Fidelity recommends that people save 10 to 15% of pay; at a minimum, save up to the employer match. The average employer match is 4.5%. Some employers match 100% of the first 3% of employee salary deferrals, and others match 50% on 6%, meaning you have to defer 6% of pay to get the full employer match. “A lot of employers are taking that strategy to increase employee savings rates,” Thompson says.

Note that the annual increase programs are separate from automatic enrollment programs, where your employer automatically enrolls you in a 401(k)—often at a low 3% savings rate–unless you opt out. Automatic enrollment is done by 26% of plans but covers 56% of participants because it’s in most part large plans that implement it. Of those plans that automatically enroll employees, less than half (46%) have annual increase programs. That can leave employees stuck saving too little.

If your plan doesn’t offer annual increases, make a point of revisiting your savings rate during annual enrollment when you sign up for other employee benefits programs like medical and dental insurance. In most plans you can contact your 401(k) administrator at any time during the year and reset your contribution rate.

 
 
 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

IPad Air Giveaway 2014 is Online
IPad Air Giveaway 2014 is Online
Our sister site I4U News is giving away a brand new iPad Air or if you can wait an iPad Air 2. This is an $499 value.
 
 
Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
 

Latest from the Network

Shuttler Kashyap reaches CWG quarters
Glasgow, July 31 (IANS) Indian shuttlers Parupalli Kashyap, R.M.V. Gurusaidutt and P.C. Thulasi won their respective Round of 16 matches to enter the quarter-finals of the Commonwealth Games here Thursday. Men's...
Read more on Sport Balla
 
Indian gymnast Ashish finishes 6th in men's floor
Glasgow, July 31 (IANS) India's artistic gymnast Ashish Kumar finished sixth in the men's floor final at the Commonwealth Games here Thursday. With a score of 15.533 points, England's Max Whitlock clinched the gold...
Read more on Sport Balla
 
International experts reach MH17 crash site (Roundup)
Kiev/The Hague, July 31 (IANS) A group of international experts Thursday reached the crash site of the Malaysian passenger airliner in eastern Ukraine after the Ukrainian government called a daylong truce in that...
Read more on Politics Balla
 
Apple Reportedly Releasing the iPhone 6 on October 14
We are heading closer towards seeing the launch of the highly anticipated iPhone 6, as a new report claims that the device will be released on Tuesday, October 14.The news has been published by Mac Rumors, stating that...
Read more on Apple Balla
 
Lorde to curate Hunger Games soundtrack
Lorde will curate the soundtrack for 'The Hunger Games: Mockingjay - Part 1'. The 'Royals' hitmaker - who covered the track 'Everybody Wants to Rule the World' for 'The Hunger Games: Catching Fire' theme tune - will...
Read more on Movie Balla
 
Wesley Snipes up for Blade 4
Wesley Snipes would love to make another 'Blade' movie. The vampire trilogy was one of the 52-year-old actor's most successful endeavours and he's now revealed he's open to the idea of making a fourth instalment. He...
Read more on Movie Balla
 
Harry Shum Jr. for Crouching Tiger sequel
Harry Shum Jr. is to star in the 'Crouching Tiger, Hidden Dragon' sequel. The 'Glee' star - who plays the role of Mike Chang on the hit musical TV series - has been added to the cast of the upcoming martial arts drama,...
Read more on Movie Balla
 
India in men's fours lawn bowls semifinals
Glasgow, July 31 (IANS) India made it to the semi-finals of the men's four lawn bowls beating Norfolk Islands in the 2014 Commonwealth Games at the Kelvingrove Lawn Bowls centre here Thursday. India won 26-4 against...
Read more on Sport Balla
 
Dita Von Teese throws craft party
Dita Von Teese threw her annual Garden & Arts party on Sunday (07.27.14). The burlesque dancer was joined by a group of close friends at the Kia Motors Malibu Estate for the daytime bash, and her guests got to enjoy...
Read more on Celebrity Balla
 
Whitney Port waiting on wedding dress
Whitney Port won't buy her wedding dress until the ''last minute''. The former 'Hills' star says her and fiance Tim Rosenman's wedding plans are going ''great'' and though she wouldn't say when or where the nuptials...
Read more on Celebrity Balla