Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings

As states and localities continue to modify their retirement packages so that their benefits remain fiscally sustainable and still provide retirees with sufficient financial security, supplemental saving plans have taken on an increased role. One way such plans could be enhanced in the public sector is by automatically increasing the amount an employee saves as they progress through their career.

This issue brief highlights the challenges and opportunities state and local governments may face as they consider automatic escalation policies. Through interviews, case studies, and a review of academic and practitioner research, the brief provides recommendations on how governments might incorporate an automatic escalation policy into their defined contribution retirement plans. Key recommendations include:

• Ensure that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy.
• Acknowledge that there is not one uniform approach to automatic escalation. The policy should reflect a government’s unique workforce preferences and policy environment.
• Reduce or eliminate as many barriers to plan enrollment as possible.
• Communicate with employees about the benefits of the feature when it is adopted.
• Consider implementing it in conjunction with other features, such as automatic enrollment.