Auto-Enrollment Triples New Hire Participation

Vanguard report finds DC plan take-up rates surge to 91% from 28% under automatic enrollment.


Automatic enrollment in defined contribution (DC) plans has led to a huge boost in retirement plan participation rates, according to a report from Vanguard that also found the feature leads to an increase in deferral rates over time.

“Automatic enrollment has emerged as a pivotal strategy to improve plan participation and employee saving rates in 401(k) and other DC retirement plans,” according to the report. 

The report said that under auto-enrollment, DC plan sponsors have seen participation rates among new hires more than triple to 91%, compared with 28% under voluntary enrollment. Additionally, after three years, 92% of participants hired under auto-enrollment were still participating in the plan, compared with 29% of participants under voluntary enrollment.

The report was based on a study of more than 810,000 newly eligible employees in 520 plans hired between Jan. 1, 2017, and Dec. 31, 2019, and who were still employed by the plan sponsor as of June 30, 2020. Participants in the sample skew younger, have a shorter tenure than the general participant population, and have median account balances of $6,500. All the plans in the sample selected a balanced investment strategy as the default investment, with 99% choosing target-date funds (TDFs).

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Vanguard’s research found that auto-enrollment raises plan participation rates most dramatically among young and low-income workers, who have historically had very low participation rates under voluntary enrollment plans. Employees earning less than $15,000 had a participation rate of 82% under automatic enrollment, compared with just 4% under voluntary enrollment.  Likewise, nine of 10 employees younger than 25 were plan participants under automatic enrollment, versus fewer than two in 10 under voluntary enrollment.

Although lower-income workers gained the most from auto-enrollment, the study found that wealthier participants also benefited from the program. Among employees making more than $150,000 a year, new-hire participation rates were also higher under automatic enrollment than under voluntary enrollment.

Additionally, auto-enrollment raises the “floor” contribution rate in a DC plan by replacing non-contributors with participants saving generally at 4% or higher.

“Sponsors can seek to improve retirement outcomes through automatic enrollment combined with higher initial deferral rates, an automatic increase feature, and a total automatic increase cap of at least 10%,” said the report, which added that another way to improve outcomes is to extend the automatic enrollment design from only new hires to all eligible nonparticipants. “Plan sponsors should consider using the power of inertia by employing various types of sweeps, such as re-enrollment, under-saver, and automatic increase sweeps.”

Vanguard said its analysis emphasizes the importance of plan design defaults, the role of inertia in retirement savings decisions, and the impact of employer plan design decisions on retirement adequacy among DC plan participants.

“All things being equal, stronger default designs will help improve retirement outcomes because of the effect of inertia,” the report said. “Sponsors should seek to take advantage of this behavioral bias when designing their DC retirement programs.”

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SEC Extends Its Reach into Dark Web

Regulator charges former SpaceX engineer in its first enforcement of alleged securities violations on that part of the internet.


In its first enforcement action involving alleged securities violations on the dark web, the US Securities and Exchange Commission (SEC) has charged a former SpaceX engineer with perpetrating a fraudulent scheme to sell purported “insider tips.”

Using specific software, the dark web provides users anonymous access to the internet and is often used to host websites and marketplaces that support or promote illegal activity.  

According to the SEC’s complaint, James Roland Jones allegedly accessed an insider trading forum on the dark web in search of material nonpublic information on which to trade securities. The forum was described as a place where anonymous participants could exchange material nonpublic information about various publicly traded companies.

The forum’s rules stated that its main goal was to create “a long-term and well-selected community of gentlemen who confidently exchange insider information about publicly traded companies.” To gain access to the forum, users were required to demonstrate that they possessed material nonpublic information. The forum’s moderators would then determine if the insider information was genuine and, if so, would grant access to the forum.

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Jones allegedly gained access to the forum by correctly guessing the upcoming earnings per share for a home building company. He claimed his information came from a friend who worked at the company, and the moderators granted him access. However, to remain in the forum, members had to continue providing tips, and when Jones failed to guess correctly again, his access to the forum was revoked. Jones claims that in the approximately three months he was a member of the forum he was unable to obtain any useful information.

Unsuccessful in obtaining insider information, Jones allegedly began advertising and selling stock tips on the dark web that he falsely claimed were obtained from the insider trading forum and/or corporate insiders. To access Jones’ purported information, investors paid Jones in Bitcoin and then traded stocks based on his purported tips.

“This case shows that the SEC can and will pursue securities law violators wherever they operate, even on the dark web,” David Peavler, director of the SEC’s Fort Worth Regional Office, said in a statement.  “We have committed staff and technology to pierce the cloak of anonymity these wrongdoers try to throw over their crimes.”

The SEC’s complaint charges Jones with violating the antifraud provisions of the federal securities laws. Jones agreed to a bifurcated settlement that, subject to court approval, permanently enjoins him from further violating the antifraud provisions and reserves the determination of disgorgement and civil penalties for a later date.

In a parallel action, Jones pleaded guilty to conspiracy to commit securities fraud after criminal charges were filed against him in the US Attorney’s Office for the Middle District of Florida, which identified Jones in a press release as a former engineer for Elon Musk’s SpaceX. Jones faces a maximum penalty of five years in federal prison. 

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