Impact of Automatic Enrollment in the 457 Plan for South Dakota Public Employees


Summary:

This brief examines the impacts of South Dakota’s shift from voluntary to automatic enrollment in its supplemental retirement savings plan for public employees.

Author(s):
Robert L. Clark, Joshua M. Franzel, and Denis Pelletier
Publication date:
March 2018
Filed under:
Research Studies
Key findings:
South Dakota was one of the first states to provide for automatic enrollment of public employees in the state's supplemental retirement savings plan (starting in 2009). For those state or local governmental units choosing to participate, the default employee contribution amounts for their covered new hires were twenty-five dollars per month. Subsequent authorization of an automatic escalation arrangement for employee contributions has provided agencies the option of increasing that automatic employee contribution by ten dollars per month for each year of service, with a goal of helping those employees to build their retirement savings.Along with educational outreach and retirement calculator tools, these changes have contributed to a significant increase in the percentage of employees contributing to the SRP -- with auto-enrolling agencies experiencing participation rates 85-percentage points higher than for those agencies that did not adopt automatic enrollment.
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While private sector employers began rapidly adopting automatic enrollment provisions for their 401(k) plans after the passage of the 2006 Pension Protection Act, the public sector has been much slower to do the same for retirement saving plans. In 2009, South Dakota became one of the first states to implement automatic enrollment in its supplemental retirement saving plan (SRP) for public employees.

Prior to 2009, state and local employees had to voluntarily opt into the SRP, and few did. Concerned about employees’ ability to achieve their desired retirement incomes, state administrators proposed that the South Dakota legislature enact legislation to enable state agencies to implement automatic enrollment policies. Employees’ response to automatic enrollment was positive: as a result of the change, SRP participation rates are 85 percentage points higher for employees who are automatically enrolled compared to those working at agencies that did not adopt automatic enrollment.