COLUMBUS, Ohio—Although Nationwide Mutual Insurance Co.'s employees participate in the company's defined benefit pension plan, Jack Towarnicky, associate vp of benefits planning, was concerned that a pension alone might not be sufficient to maintain their standard of living after retirement.

Because so few of Nationwide's employees were setting aside their own funds for retirement, just 54% were "on track" for a financially successful retirement, according to a Personalized Retirement Education and Planning analysis conducted by Aon Consulting.

The PREParedness analysis compares employee-specific data against the findings of the annual Aon Consulting/Georgia State University Retirement Income Replacement Ratio Study, which details the percentage of an employee's final annual salary that needs to be replaced to maintain their standard of living after retirement.

Mr. Towarnicky felt that by instituting automatic enrollment in the company's 401(k) plan, a practice given the green light by provisions in a 2006 pension funding reform law, Nationwide's employees might become better prepared for retirement. But rather than using the common practice of targeting only new hires for automatic enrollment, Nationwide opted to automatically enroll all of its employees, regardless of their date of hire, every year.

"It's almost like an annual enrollment for the 401(k)," said Dianna Smith, director of benefits planning, who is in charge of Nationwide's automatic 401(k) enrollment program.

Since merit pay raises take effect with the first paycheck in April, this date was designated as the effective date for the start of auto enrollment. In April 2007, initial contribution rates were set at 3%, with automatic increases set at 1% annually and capped at 6%.

Employees can accept the automatic contributions, increase them or opt out of the plan entirely.

As a result of the implementation of automatic enrollment, enrollment in Nationwide's 401(k) plan grew from 74% in 2006 to 94% in 2007.

"We anticipated a 10% opt-out rate. We went from 74% participation rate to 94%. That was huge for us," said Ms. Smith, adding that "there was also no leakage after the automatic increases took effect."

In fact, participation grew to 96% this year, the second year of automatic enrollment in the 401(k), she said.

Deferral rates also increased from an average of 5.94% of pay in 2007 to an average of 7.01% this year.

Perhaps even more importantly, employees' income replacement ratios, based on the Aon/Georgia State analysis, also improved to 64%.

"We actually exceeded our goal. Our goal was to achieve at least what would happen if everyone just took the default. That would have taken us to 58%. We ended up at 64%," Mr. Towarnicky said. "There apparently was a lot of pent-up realization that employees should be doing more to save for retirement."

Although the improvements were significant, Mr. Towarnicky is still not satisfied, pointing to findings of Aon and Georgia State's 2008 Replacement Ratio Study, which shows that the percentage of income replacement necessary has increased based on cost of living increases, tax changes and other factors.

In response to these findings, initial 401(k) contribution rates in the automatic enrollment program will be raised to 4%, and the 1% annual increases will continue until they reach 12%.