2012 Hot Topics in Retirement - Aon

Contribution Escalation Getting individuals to save more can have a significant impact on employees’
ability to accumulate su�cient retirement assets. Contribution escalation has
proven a robust tool that positively impacts savings rates gradually
over time.
A significant number of employers (40%) also now utilize contribution
escalation overall, although this trend is much stronger among larger plans,
as 54% of plans with more than 25,000 employees leverage automatic
escalation. Approximately one-third (31%) of all employers that currently
do not o�er this to employees are very or somewhat likely to add the
feature in 2012.
Contribution Escalation—Usage and Plans for 2012
Current State
Already have
40%
Don’t have
60%
(n=430)
Future Direction
Very likely 8%
Somewhat likely 23%
Somewhat unlikely 26%
Very unlikely 44%
Forty-six percent of plans employing automatic enrollment also default
employees into contribution escalation. When embedded within automatic
enrollment, plan sponsors must select not only the initial default savings rate,
but also the rate of escalation and the threshold or stopping point for the
escalation. Nearly all plans (97%) with contribution escalation increase
employee deferrals by 1% annually. In terms of the escalation threshold, 45%
of respondents indicated they escalate up to 6% of pay, while 42% escalate
to 10% or beyond.
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