Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings

by

SLGE#0314

This brief looks at how automatic escalation features can help public employees save more for retirement, and the challenges and opportunities state and local governments may encounter as they consider automatic escalation policies.

As states and localities continue to modify their retirement packages, public employees may need to save more to ensure that they have an adequate retirement income.

This is the first study to examine automatic escalation options for public sector retirement plans and supplemental defined contribution plans.

Using interviews, case studies, and a review of academic and practitioner research, the brief offers recommendations on how governments might incorporate an automatic escalation policy into their defined contribution retirement plans, including:

  • 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 no uniform approach to automatic escalation policies. The policy should reflect a government’s unique workforce preferences and policy environment.
  • Reduce or eliminate as many barriers to 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.

The report also includes case studies of successful implementation of automatic escalation in supplemental defined contribution plans for some public employees in Missouri, Ohio, and Virginia.