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DC plan advice mostly automated

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Advice in defined contribution (DC) plans is mostly automated today and is often administered without any action from the plan participant, according to research from Cerulli Associates. 

"Plan sponsors have increasingly embraced autofeatures, which were once thought of as radical, in an attempt to boost plan participation and employee contributions," says Jessica Sclafani, senior analyst at Cerulli. "This shift in perception is in response to the overall lack of participant engagement." 
 
"Retirement advice begins with autoenrolment, which informs employees they should save for retirement. Autoenrolment is a crucial first step in autoadvice that captures the most vulnerable population of the workforce that isn't saving at all," Sclafani explains. 

According to Cerulli's 2014 Plan Sponsor Survey, 73% of plan sponsors have incorporated automatic features into their plan design. Nearly 90% of plans use autoenrolment, with the majority of flows directed toward target-date funds. 
 
"While widespread adoption of autoenrolment is a step in the right direction, a deferral rate of less than 5% salary is inadequate and will not translate to retirement security," Sclafani continues. 
 
"Automatic features present an effective method for delivering advice to participants in the current DC environment in which participant engagement is lacking. Autoadvice, such as autoenrolment and autoescalation, can counterbalance the strong inertia present in DC plans. Also, where traditional advice may be heard but not acted upon, autoadvice ensures that the advice is implemented or actively declined," adds Sclafani. 
 
Given that the participant bears the greatest responsibility in saving for retirement, Cerulli believes that the implementation of autofeatures reflects a realistic versus paternalistic approach to plan design. DC providers should guide plan sponsors in exploring and expanding the use of autofeatures to better prepare participants for retirement, and ultimately, drive greater assets into their accounts. 
 
These findings and more are from the February 2015 issue of The Cerulli Edge – US Edition, which also covers the evolution of advice focusing on the rise of goals-based planning, and evaluates eRIAs' first-mover advantage. 

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