401(k) Plan Sponsors Adding Automated Features
As the trend among employers toward automatically enrolling employees in 401(k) plans gathers momentum, many retirement plan sponsors are also adopting additional automated features designed to help workers prepare more effectively for retirement, a study released by human resources consultancy Hewitt Associates concluded.
The biennial survey of more than 300 mid- to large-sized companies offering 401(k) plans found that 34% of the 2007 sample are automatically enrolling employees, up from 19% in 2005. Of those respondents using automatic enrollment, 77% reported that 401(k) plan participants are defaulted into a diversified portfolio that includes target maturity or balanced funds, up from 39% in 2005.
The survey also found that 83% of employers with default features set the default contribution rate at 3% or higher in 2007, compared with 66% in 2005. Results further indicated that 28% of 401(k) plan sponsors used contribution escalation in conjunction with automatic enrollment in 2007, with more than 40% of these companies escalating participants to target rates of between 8% and 15%.
Meanwhile, just 25% of the 401(k) plan sponsors surveyed told pollsters they view a high participation rate as the primary measure of the success of retirement plans, down from 43% in 2005. According to researchers, this finding suggests that many employers no longer judge the success of their retirement plans by participation rates alone, but also by the plan’s ability to facilitate the building of retirement wealth.
“It’s obvious that today’s employers understand that the majority of their employees take a back seat in managing their retirement,” said Pamela Hess, director of retirement research at Hewitt Associates. “As a result, they are shifting their priorities from basic enrollment to quality enrollment. Employers are helping their employees obtain sufficient retirement income by picking more appropriate default contribution rates and investment funds, and coupling automatic enrollment with other automated tools that force employees to save and invest more wisely.”
